SAP SE (SAP) To Report Q4 Earnings: What's In The Cards?

SAP SE (DE:SAPG) (NYSE:SAP) is scheduled to report fourth-quarter 2018 results on Jan 29.

Notably, the company beat the Zacks Consensus Estimate in three of the trailing four quarters, recording average positive surprise of 5.9%.

The company delivered third-quarter 2018 non-IFRS earnings of €1.14 ($1.33) per share, up 13% on a year-over-year basis. Moreover, the bottom line surpassed the Zacks Consensus Estimate of $1.26.

Total revenues, on non-IFRS basis, were €6.031 billion ($7.01 billion), up 8% year over year (up 10% at constant currency), outpacing the Zacks Consensus Estimate of $6.97 billion. The momentum in cloud business and strong growth of support revenues aided top-line growth in the last reported quarter.

What to Expect?

The Zacks Consensus Estimate for third-quarter earnings is pegged at $1.78 per share, indicating a decline of 14.4% from the year-ago quarter.

Revenues are estimated to be around $8.28 billion, indicating a rise of 3.3% on a year-over-year basis.

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

Factors at Play

SAP's Cloud and Software business have been consistent growth drivers for quite some time. In fact, Cloud and software business revenues came in at €5.017 billion in the third quarter, up 8% year over year driven by Cloud subscriptions & support revenues of €1.315 billion, which surged 41% from the year-ago quarter.

SAP’s acquisition of Qualtrics for $8 billion in cash remains a notable development in the quarter under review. Notably, Qualtrics specializes in providing Software-as-a-Service (SaaS) based experience management (“XM”) software.

The company is anticipated to strengthen its foothold in the customer relationship management market against peers including salesforce.com (NYSE:CRM) , Oracle (NYSE:ORCL) , among others. With Qualtrics buyout, SAP is anticipated to bolster Customer Experience segment revenues further. Notably, the segment’s revenues surged 54% at cc to €232 million in the last-reported quarter.

Moreover, Callidus, buyout of which was concluded in April, 2018, contributed €52 million to revenues in the third quarter.

In the quarter under review, SAP unveiled new applications and enhancements to its Leonardo offering, EIM or Enterprise Information Management portfolio and its cloud platform. The incremental adoption of the company’s updated solutions is expected to bolster its topline.

Furthermore, the growing clout of SAP’s Human Capital management (“HCM”) flagship solution — SuccessFactors Employee Central — is anticipated to be a tailwind. In fact, UCB 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 2,800 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 37% from the year-ago quarter to 9,500 customers.

New deal wins from KIO Networks, Delivery Hero SE, iLoLay, Singapore Airlines ("SIA"), among others bode well.

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.. Sell-rated stocks (Zacks Rank #4 or 5) are best avoided.

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

Stock that Warrants a Look

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.

Brown & Brown, Inc. (NYSE:BRO) has an Earnings ESP of +5.38% and a Zacks Rank #2. The company is slated to report fourth-quarter 2018 earnings on Jan 28. You can see the complete list of today’s Zacks #1 Rank stocks here.

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