Wednesday, October 28, 2009

SAP Q3 net Income Up 12 Pct, Cuts Outlook

. Wednesday, October 28, 2009

By stockOzone team

German business software maker SAP AG said third quarter net income rose 12 percent, as a drop in revenue was offset by a lower tax rate and better profit margins. But a negative outlook sent the shares down sharply.

SAP, based in Walldorf, said net income rose to euro435 million ($644 million) from euro389 million in the July-September period of 2008.

The company said total revenue fell, however, by 9 percent to euro2.5 billion from euro2.8 billion in the third quarter of 2008. Software revenue declined 31 percent, while service revenue fell 3 percent, SAP said.

SAP also said it expects software and software-related service revenues to decline by about 6 percent to 8 percent for the full year from euro8.6 billion in 2008. Earlier this year, the company had suggested a drop of only 4 to 6 percent for 2009.

The news sent SAP shares 7.25 percent lower to euro31.91 in Frankfurt morning trading.

The company said despite the lower revenue, outlook, and tough economic conditions, it was still making some small sales agreements and was focusing on longer-term deals with customers.

"We are driving more multiyear agreements, where customers buy and consume software over many periods, which we believe is a positive transition for both SAP and our customers," Leo Apotheker, the chief executive, said in the company's report.

"We have the benefit of many years of experience in facilitating the purchase of our software in this manner, including the success we had in signing multiyear (agreements) with our largest customers," Apotheker said.

While the company saw a number of charges in the third quarter, including restructuring costs related to job cuts, it also reversed provisions it had set up for an acquisition. The net effect was a contribution to operating profit of euro2 million.

SAP's tax rate fell considerably, to 21 percent from 31.9 percent a year ago, because of acquisition-related items.

SAP said it expects a tax rate for the full year of around 27 percent to 28 percent, lower than the previously expected 29.5 percent to 30.5 percent.

The company said total income from continuing operations rose 6 percent to euro436 million.

During the first nine months, the company reported a 3 percent decline in software and service revenue to euro5.6 billion.

Operating profit rose 1 percent to euro1.59 billion in the January-September period, but SAP said that result was affected by the euro186 million in charges from the reduction of 2,900 positions across the company.

"We are pleased to report another quarter of increasing margins despite a decline in revenue. This demonstrates our continued success in maintaining tight cost controls," Werner Brandt, SAP's chief financial officer said.

"While we are seeing signs of stabilization in the general environment, the market remains difficult. Third quarter software and software-related service revenues came in lower than we expected mainly because of a particularly challenging environment in the emerging markets and Japan," Brandt said.

Disclosure: Author does not own any of the stocks discussed here.

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