SAP AG (SAP) released its earnings results for third quarter 2010, reporting earnings per share of €0.42 or 54 cents. The company’s earnings for the quarter missed the Zacks Consensus Estimate of 67 cents by 20%.
Revenue
SAP AG reported total revenues of €3 billion or $3.87 billion, above the Zacks Consensus Estimate of $3.81 billion. The revenues in the quarter increased by 13% at constant currency, led by strong growth in software revenue, support revenue and double digit growth in subscription revenue. The company recorded double-digit growth in software and software related service revenue and the contribution of Sybase. Strategic markets, like the US, also provided substantially good revenue growth for the company of 27% at constant currencies.
Software and software-related revenue increased by 20% year over year to €2.32 billion. Excluding currency effects, software and software-related revenue increased by 13%.
Software revenue for the period was €656 million, an increase of 25%. Excluding currency effects, software revenue increased by 15%.
Income & Expenses
Operating income, representing 23.8% of revenue, increased by 16% year over year to €716 million in the quarter. The operating margin declined by 88 basis points compared to the prior-year quarter. The third quarter 2010 results were not materially impacted by the restructuring expenses, which had negatively affected the 3Q09 results by 0.4%.
Profit after tax increased by 12% year over year to €501 million. The effective tax rate was 27.3% compared with 20.5% in the third quarter of 2009.
Balance Sheet & Cash Flow
Total group liquidity, including cash and cash equivalents and short-term investments amounted to €3.00 billion at the end of the quarter.
Operating cash flow for the nine months 2010 exceeded €2 billion (2009: €2.36 billion). The year-over-year decrease in operating cash flow was mainly the result of a significant increase in payments in 2009 that were delayed from the end of 2008 resulting from the financial crisis. Free cash flow was €1.86 billion (2009: €2.19 billion), a decrease of 15%. Free cash flow was 22% of total third quarter revenues.
Outlook
SAP AG expects full-year 2010 non-IFRS software and software-related service revenue to increase in a range of 9% – 11% at constant currencies. SAP’s business, excluding the contribution from Sybase, is expected to contribute 6 – 8 percentage points to growth.
The company projects an effective tax rate of 27.5% – 28.5% for 2010.
We currently have an Outperform recommendation on SAP AG.
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