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Salesforce Inc. produced better adjusted earnings than expected in the fourth quarter and executives projected big profit gains amid layoffs this year in a Wednesday report, sending shares toward their biggest gain since 2020.
Salesforce
CRM,
reported a fourth-quarter loss of $98 million, or 10 cents a share, on revenue of $8.38 billion, up from $7.33 billion a year ago. After adjusting for stock compensation and other costs, including 84 cents a share in restructuring costs from recent layoffs, the cloud-software company reported earnings of $1.68 a share, up from 84 cents a share last year.
Analysts on average expected adjusted earnings of $1.36 a share — the middle of the forecast range provided by Salesforce executives — on sales of $7.99 billion, according to FactSet. Salesforce shares roared more than 15% higher in after-hours trading immediately following the release of the results, after closing with a 2.3% increase at $167.34. The last time Salesforce stock gained more than 10% in a single session was Aug. 26, 2020, when the stock enjoyed record gains after a strong earnings report early in the COVID-19 pandemic.
Salesforce shares have been on a tear this year, as activist investors have piled into the stock in unprecedented fashion. At least five activists have reportedly amassed investments in Salesforce as the stock has gained more than 25% this year, the strongest year-to-date gain for a Dow Jones Industrial Average
DJIA,
component.
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Those gains follow the worst year for Salesforce stock since 2008, as shares dove 47.8% while earnings declined. Despite revenue growth of nearly 25% in the fiscal year that ended in January 2022, profit dropped nearly 65% on a GAAP basis and 3% on an adjusted per-share basis.
In the fiscal year that just ended, adjusted earnings returned to growth, Salesforce reported Wednesday. While GAAP earnings fell to $208 million from $1.44 billion, adjusted earnings rose to $5.24 a share — an annual record — from $4.78 a share the previous year. Revenue increased 18.3% to $31.35 billion for the entire year.
“For the full year we delivered $31.4 billion in revenue, up 18% year-over-year, or 22% in constant currency, one of the best performances of any enterprise software company our size,” Chief Executive Marc Benioff said in a statement. “We closed FY23 with operating cash flow reaching $7.1 billion, up 19% year-over-year, the highest cash flow in our company’s history, and one of the highest cash flows of any enterprise software company our size.”
Benioff believes that profit will grow much faster to a much larger record total this year. Salesforce executives guided for fiscal-year adjusted profit of $7.12 to $7.14 a share and revenue of $34.5 billion to $34.7 billion Wednesday, while analysts on average were expecting annual earnings of $5.87 a share on sales of $33.89 billion, according to FactSet.
As the fiscal year was wrapping up, Salesforce announced it would lay off 10% of its roughly 80,000 workers. Benioff said at the time that “we hired too many people leading into this economic downturn we’re now facing, and I take responsibility for that.”
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That move is part of what Wall Street expects from Salesforce: A focus on profit margins instead of revenue growth.
“With the potential for further large cost-cutting and likely pressure by upwards of 5 activist shareholders, we believe progress on strengthening profits and cash flow & achieving FY26 margin target could be more important in near term than revs/demand KPIs,” Truist analysts wrote Tuesday while reducing their estimates for fourth-quarter results but maintaining a “buy” rating and $210 price target.
Chief Financial Officer Amy Weaver said in a conference call that executives’ goal of reaching an adjusted operating profit margin of greater than 25% by the 2026 fiscal year had been accelerated, and they now expect a margin of 27% in the current 2024 fiscal year. Weaver expects Salesforce to hit a 30% margin in the first quarter of the 2025 fiscal year, and said “we are not putting a ceiling on our margin aspirations.”
“Improving profitability is our highest priority and that really showed up this quarter,” Benioff said in a conference call Wednesday. “Our goal is to make Salesforce the largest and most profitable software company in the world, and that is what we are doing.”
Salesforce also added billions to its stock-buyback plan. Salesforce’s board doubled its share-repurchase authorization from $10 billion to $20 billion; a filing with the Securities and Exchange Commission showed that Salesforce had $6 billion in authorized buyback funds remaining, so the move adds $10 billion to that sum.
In the first quarter, executives expect adjusted earnings of $1.60 to $1.61 a share on revenue of $8.16 billion to $8.18 billion, beating the average analyst estimate of $1.32 a share on sales of $8.01 billion.
For more: Salesforce reportedly faces board challenge from activist investor
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