SAP's Third-Quarter Pretax Profit Rises More Than 43%
Walldorf, Germany, Oct. 9 (Bloomberg) -- SAP AG, the world's largest business software maker, said third-quarter pretax profit rose more than 43 percent, above expectations, as U.S. demand overcame a weakening dollar.
The shares rose as much as 14 percent after a preliminary report from SAP indicated that third-quarter pretax profit rose to at least 358 million marks ($219 million) from 251 million marks, based on Bloomberg calculations. The company will release a full financial report that includes net profit on Oct. 20.
The statement follows a tumble in SAP shares to half their July 31 record price of 1,325 marks as they were hit by concern about slower growth and a weakening U.S. dollar. Since Sept. 1, the dollar has dropped 9 percent against the mark, threatening to cut into the sales of big exporters like SAP, which does more than 40 percent of its business in the U.S.
''The market was worried the last couple of days that this quarter would reveal some sort of disaster lurking within,'' said Devika Malik, an analyst at J.P. Morgan Securities. ''But these really are a strong set of numbers.''
SAP shares closed up 66 marks, or 10.6 percent, at 685. In U.S. trading, SAP American Depositary Receipts rose 4 1/16 to 36. The news also boosted U.S. competitors' shares, which have been battered this month on concern about slower growth in the $14.4 billion market for programs that help companies track personnel manufacturing and inventory through one network.
PeopleSoft Inc. rose 1 7/16 to 23 1/4 in U.S. trading while J.D. Edwards & Co. gained 5 11/16 to 33 7/8. BMC Software, which makes corporate computer systems management software, climbed 5 1/8 to 45 11/16. Siebel Systems Inc., which makes software used to automate sales and service departments, rose 3 5/16 to 19 7/8. Compuware Corp. rose 6 3/4 to 46 1/2.
''Fear had really begun to dominate in the enterprise software sector,'' said Douglas Crook, analyst at Prudential Securities Inc. ''With SAP pre-releasing its third-quarter results, there's probably a sigh of relief.''
Company Forecasts
SAP, which was founded in 1972 by co-Chairman Hasso Plattner, 54, and four others who left IBM Corp. to develop some of the first standard business management software, repeated that it expects pretax profit to grow between 30 percent to 35 percent and sales to rise 40 percent for the full year, a forecast it has stuck with since March. But the company's profit and sales have grown so much faster this year that most analysts say SAP will exceed its own forecast.
Ever since disappointing third-quarter earnings two years ago sent the stock plunging 23 percent in a single day, SAP has been cautious when projecting its earnings. Analysts said even though sales have slowed from the 70 percent clip at the start of this year, sales growth would have to dwindle to 15 percent to meet its conservative forecast.
While slower economic growth in North America, Europe and Japan will hurt profits in many industries, software companies such as SAP and its rivals Baan NV and PeopleSoft may ride out the economic storm, analysts said, because their management software is designed to increase productivity and reduce costs. That's a good investment incentive for companies in tough times.
SAP said third-quarter sales climbed 43 percent to 2 billion marks, as costs rose at a slightly faster pace, partly because of SAP's new employee profit-sharing program. The company also said pretax profit was rising faster than sales. Nine-month sales rose 54 percent to 5.88 billion marks.
Sales vs. Profit
Analysts said they were puzzled that pretax profit rose faster than sales since costs also outpaced revenue growth. Most speculated the pretax earnings figure includes a big profit from possibly currency hedging or interest on investments.
''It's quite possible they're seeing a financial-profit growth that doesn't feed into earnings from normal operations,'' said Michael Wand, an analyst at Paribas Capital Markets.
SAP declined to provide details.
The company was expected to post a 40 percent increase in third-quarter pretax profit to 352 million marks, according to the average forecast of five analysts surveyed. Analysts expected third-quarter sales to rise an average 37 percent to 1.95 billion marks.
If the dollar remains weak, it may begin to cut into SAP's sales abroad as early as the fourth quarter of this year. Analysts said if the dollar drops to as low as 1.50 marks and stays there, the decline could cut 8 percent off SAP's annual sales next year.
The company also didn't disclose the cost of its new profit- sharing program in the third quarter. The program, which ties the size of bonuses to the rise in SAP's share price, was started in May to better compete against U.S. technology companies for top software programmers and developers. In the third quarter, however, the stock fell below the program-set base price of 785 marks per share.
16:33:45 10/09/1998
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