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Factors Likely to Influence SAP SE's (SAP) Earnings in Q2

Zacks Equity Research

SAP SE SAP is slated to report second-quarter 2019 results on Jul 18.

Notably, the company beat the Zacks Consensus Estimate in two of the trailing four quarters, with an average positive surprise of 2.5%.

Past-Quarter Performance

The company delivered first-quarter 2019 non-IFRS earnings of €0.90 (approximately $1.02) per share, which improved 23.3% from the year-ago figure. Moreover, the bottom line surpassed the Zacks Consensus Estimate by 8.5%.

Total revenues, on non-IFRS basis, came in at €6.118 billion (around $6.947 billion), up 16.3% year over year (up 12% at constant currency) outpacing the Zacks Consensus Estimate by approximately 2.6%. The momentum in cloud business and strong growth of services revenues aided top-line growth in the last reported quarter.

What to Expect in Q2?

The Zacks Consensus Estimate for second-quarter earnings is pegged at $1.20 per share, unchanged for the last 30 days. This indicates an improvement of about 2.6% from year-ago earnings. The consensus for revenues stands at $7.47 billion, suggesting growth of 4.4% year over year.

Let's see how things are shaping up for this announcement.

Factors to Consider Ahead of Q2 Earnings Release

SAP is expected to benefit from ongoing momentum in Cloud and Software business, driven by rapid growth in Cloud subscriptions & support revenues.

Growing clout of SAP’s Human Capital management (HCM) flagship solution — SuccessFactors Employee Central — is anticipated to aid the upcoming quarterly results. In fact, Eversheds Sutherland Ltd selected company’s cloud-based SuccessFactors solutions in the quarter under review. Notably, in the last reported quarter, SuccessFactors adoption surged to a total of 3,200 customers.

Additionally, continued market traction of the SAP S/4HANA platform is proving to be a robust growth driver. During the last reported quarter, S/4HANA adoption surged 30% from the year-ago quarter to 10,900 customers.

Markedly, NPC International (NPC), a notable Wendy and Pizza Hut's franchisee, recently selected SuccessFactors and S/4HANA, which is expected to bolster SAP’s second-quarter top line performance.

Moreover, synergies from Qualtrics acquisition is anticipated to aid SAP bolster Customer Experience (CX) segment revenues further. Notably, the segment’s revenues surged more than 100% at cc to €305 million in the last-reported quarter.

In the quarter under review, SAP unveiled new enhancements to SAP HANA offering, C/4HANA portfolio of CX solutions and its cloud platform. The company also rolled out SAP ActiveAttention, with an aim to aid enterprises in deploying its solutions seamlessly. The latest solution has been selected by BestDay travel group and Grupo Lala, among others, which bodes well for second-quarter performance.

Further, expansion of business opportunities with noteworthy collaborations with Uber Freight, and Open Data Initiative with Microsoft MSFT and Adobe ADBE, is expected to bolster the company’s top line.

SAP SE Price and EPS Surprise


SAP SE Price and EPS Surprise

SAP SE price-eps-surprise | SAP SE Quote

However, increasing investments to enhance cloud-based offerings and acquisition related expenses to maintain competitive position in the market are likely to limit margin expansion at least in the near term.

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. The Sell-rated stocks (Zacks Rank #4 or #5) are best avoided.

SAP carries a Zacks Rank #3 and has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stock to Consider

Here is a stock you may consider, as our proven model shows that it has the right combination of elements to post an earnings beat this quarter.

Helix Energy Solutions Group, Inc. HLX has an Earnings ESP of +13.33% and a Zacks Rank #1. The company is slated to report second-quarter 2019 earnings on Jul 24. You can see the complete list of today’s Zacks #1 Rank stocks here.

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