By Eric Auchard and Harro Ten Wolde
FRANKFURT (Reuters) – Europe’s largest software company, SAP <SAPG.DE>, warned late on Friday that first-quarter results would be weaker than expected due to slower sales of software licenses to corporate customers, particularly in Brazil and the United States.
Software license revenues fell 13 percent while the company’s newer, but lower-margin cloud software business grew 33 percent. Business customers are shifting to cloud-based software delivered over the Internet instead of relying on older software packages they install and run on in-house computers. “America was a little more lumpy in terms of the signing of contracts,” Chief Executive Bill McDermott told reporters on a conference call, noting that U.S. revenue from its classic on-premise software business grew more slowly than expected.
First-quarter operating profit, excluding special items, rose 5 percent to 1.10 billion euros ($1.25 billion). Analysts, on average, had been looking for a first-quarter operating profit, excluding special items, of 1.15 billion euros, with 12 estimates ranging from 1.09 billion to 1.25 billion euros, according to Thomson Reuters I/B/E/S data.
The company also reported revenue of 4.73 billion euros, shy of the I/B/E/S average forecast of 4.83 billion euros.
SAP, whose customers include many of the world’s biggest multinational corporations, specializes in business applications ranging from accounting to human resources to supply-chain management.
The company, and established rivals such as Oracle <ORCL.N> and IBM <IBM.N>, are racing to fend off pure cloud software rivals like Salesforce.com <CRM.N> and Workday Inc <WDAY.N> in the market for running complex business operations.
McDermott said he has “perfect, clear confidence” that SAP can meet the full-year profit targets it had set out in January. He said some software licensing deals the company had expected to close last quarter spilled into the current second quarter.
Ongoing political and macroeconomic instability in Latin America, particularly in Brazil, hurt first-quarter results. North America, coming off a very strong fourth quarter, had a slower start to the year, SAP said in a statement.
Asia, Europe, the Middle East and Africa turned in solid software revenues, the company said, while adding that its sales pipeline for 2016 remains strong in all regions.
It reiterated that it expects 2016 operating profit, excluding items, to range between 6.4 billion and 6.7 billion euros ($7.0 billion to $7.3 billion) at constant currencies. That represents roughly flat growth to an increase of 6 percent.
Analysts, on average, project operating profit of 6.69 billion euros for the current year, according to 27 estimates compiled by Vara Research.
SAP plans to publish its full quarterly results on April 20, but pre-announced selected figures because they were materially lower than expected. The first quarter is historically SAP’s weakest period of the year and comes after a surge in results late last year, typically its strongest seasonal period.
SAP shares closed down 1 percent at 67.37 euros in Frankfurt on Friday. The stock is 11 percent below record high levels set in December when SAP’s cloud transition was running smoothly.
($1 = 0.8774 euro)
(Reporting by Eric Auchard, Harro ten Wolde and Ilona Wissenbach; editing by James Dalgleish, G Crosse)