The Zacks Analyst Blog Highlights: The Boeing Company, General Electric Company, Salesforce, Google and Microsoft

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May 23, 2011, 09:30 ET

CHICAGO, May 23, 2011 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: The Boeing Company (NYSE: BA), General Electric Company (NYSE: GE), Salesforce.com Inc. (NYSE: CRM), Google Inc. (Nasdaq: GOOG) and Microsoft Corp. (Nasdaq: MSFT).

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Here are highlights from Friday's Analyst Blog:

Boeing Riding on Orders Galore

The Boeing Company (NYSE: BA) said that Lufthansa Cargo has finalized an order valued at $1.35 billion for five Boeing 777 Freighters. The airplanes will help Lufthansa Cargo to modernize and expand its fleet. The company has also received orders for five more 767s from LAN Airlines of Chile valued at approximately $822.0 million.

The 777 Freighter is the world's longest range twin-engine freighter manufactured by Boeing Commercial Airplanes. The 777 Freighter can fly 4,900 nautical miles and has a full payload of 225,200 pounds.

The aircraft is powered by General Electric Company's (NYSE: GE) GE90-110B1L engines and meets QC2 noise standards for maximum accessibility to noise-sensitive airports. Besides other advantages, the freighter's fuel efficiency makes it the aircraft of choice for many airliners who prefer it over other wide-body jets and uses it on long-haul, transoceanic routes.

As of March 2011, 60 customers had placed orders for 1,209 aircraft of all variants, out of which 923 were delivered. Through May 17, 2011, the company had 61 net orders for Boeing 777. Including this order from Lufthansa Cargo, a total of 88 777 Freighters have been ordered, of which 39 have already been delivered. Its direct market competitors include the Airbus A330-300 and the A340, with the upcoming A350 XWB and Boeing 787 Dreamliner programs currently in development.

Coming to the Boeing 767, it is a mid-sized wide-body twin-engine airliner produced by Boeing Commercial Airplanes. Boeing 767 versions have a range of 5,200 to 6,590 nautical miles and have the capacity to carry 181-375 passengers. Through May 17, 2011, the company had 13 net orders for the Boeing 767.

Boeing is among the best-positioned in its sector due to its balanced exposure to commercial aircraft and defense equipment. With the gradual recovery of the global economy, we believe freight and passenger traffic will improve going forward. Meanwhile, the U.S. defense budget is also skewed towards a number of prominent Boeing programs.

However, in the near term, headwinds over 787 delays and expected cutbacks in the U.S. defense budget loom large over the current valuation of the company. The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.

Salesforce.com Posts Decent 1Q

Salesforce.com Inc. (NYSE: CRM) reported first quarter fiscal 2012 adjusted net income of 6 cents per share, a penny ahead of the Zacks Consensus Estimate. The adjusted figure excludes amortization of intangibles and debt discount, but includes stock-based compensation.

Revenues

Revenues in the quarter were $504.4 million, up 33.9% from $376.8 million in the year-ago quarter. Results exceeded the company's own guidance range of $480.0 million to $482.0 million and the Zacks Consensus Estimate of $483.0 million. Salesforce enjoyed robust demand for its products, along with broad-based revenue strength across all regions.

Segment wise, Subscription and Support revenues of $473.5 million escalated 35.0% from the year-ago quarter. Professional Services and Other revenues increased 18.4% from the year-earlier quarter to $30.9 million.

Geographically, on a year-over-year basis, revenues in the Americas improved 31.1% to $340.0 million, contributing 67.4% to the total, Europe shot up 41.3% to $94.4 million, contributing 18.7% and the Asia-Pacific grew 38.0% to $70.0 million, contributing 13.9%.

As many as 5,400 paying customers were added since the prior quarter. The number of net paying customers at the end of the first quarter was 97,700.

Operating Results

Gross profit on a GAAP basis was $401.3 million, up 31.5% year over year, while on a non-GAAP basis was $414.0 million, up 33.6% from the year-ago quarter. The non-GAAP figure excludes amortization of purchased intangibles and stock-based compensation.

The GAAP gross margin was 79.6%, down from 81.0% in the year-ago quarter. Non-GAAP gross margin was 82.1%, compared with 82.3% in the year-ago quarter. The gross margin deterioration was attributed to higher investments in its U.S. data centers and costs required to build out the Japan data center.

Operating expenses rose 48.5% and 44.8% year over year, on a GAAP and non-GAAP basis, respectively. The growth rate was much higher than that of the quarter's revenue, which resulted in an operating loss.

Operating loss, on a GAAP basis, was $2.8 million, compared to operating income of $33.1 million in the year-ago quarter. Operating income on a non-GAAP basis was $55.1 million, down from $62.0 million in the year-ago quarter.

GAAP operating margin was (0.6%) versus 8.8% in the prior-year quarter. Non-GAAP operating margin was 10.9%, compared with 16.5% in the year-ago quarter. The decline in the operating margin was due to increased R&D investments to maintain the company's technology leadership. Increased headcount also added to costs.

GAAP net income in the quarter was $0.5 million compared with $17.7 million in the comparable quarter last year. On a per share basis, the company just broke even compared with earnings of 13 cents a year ago.

Excluding special items, net income on a non-GAAP basis was $39.9 million or 28 cents per share, compared with $39.9 million or 30 cents in the year-earlier quarter. However, non-GAAP net income including stock-based compensation expense was $9.0 million or 6 cents per share, compared with $22.8 million or 17 cents.

Balance Sheet & Cash Flow

Salesforce.com ended the quarter with cash, equivalents and short-term marketable securities of $763.8 million, up from $497.0 million in the prior quarter. Accounts receivable decreased $156.1 million from the prior quarter to $270.8 million. Salesforce.com has no long-term debt. Total deferred revenue in the quarter was $915.1 million, down from $934.9 million in the previous quarter.

Cash from operating activities in the quarter was $139.5 million, compared with $165.8 million in the prior quarter. Capital expenditure decreased $3.3 billion from the previous quarter to $27.3 million. Free cash flow surged $58.9 million from the prior quarter to $112.2 million.

Guidance

Salesforce.com has provided guidance for the second quarter and fiscal 2012. For the second quarter of 2012, total revenue is expected in the range of $526.0 million to $528.0 million. GAAP loss per share is expected at between 1 cent and break-even, while non-GAAP diluted earnings per share (EPS) is expected to be in the range of 29 cents to 30 cents.

For full-year 2012, Salesforce.com raised its revenue outlook to $2.15–$2.17 billion from $2.03–$2.05 billion. Diluted GAAP EPS is expected in the range of negative 3 cents to negative 1 cent (previously 8 cents to 11 cents), while diluted non-GAAP EPS is projected in the range of $1.30 to $1.32 (previous expectation was $1.35 to $1.38).

For both the second quarter and fiscal year, Salesforce.com assumes an average diluted share count of 145 million.

The non-GAAP EPS guidance for the second quarter and fiscal 2012 exceeded the Zacks Consensus Estimates of 3 cents and 30 cents, respectively.

Our Take

Salesforce.com reported decent first quarter 2012 results. It also provided an encouraging guidance for the second quarter and full-year 2012 based on strong demand for its business software and customer additions.

We, however, caution investors about strong competition in the CRM application and cloud-computing areas. Google Inc. (Nasdaq: GOOG) and Microsoft Corp. (Nasdaq: MSFT) are worthy of special mention, since they have been fighting to win government clients at local, state and federal levels to use their online e-mail and other applications that fit into the cloud-computing space.

Currently, Salesforce.com has a Zacks #3 Rank, implying a short-term Hold recommendation.

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