salesforce.com Earnings: What You Need to Know

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Ahead of salesforce.com's (NYSE: CRM  ) earnings report, I highlighted three items that investors interested in the company's story should look for when the earnings results came in. The first was a potential upward revision in the company's full-year guidance, as sell-side estimates seemed more optimistic than the company's own guidance. The next two were operating margin and cash flow growth trends.

Did salesforce.com deliver against analyst expectations and the goals that management had laid out on previous earnings releases and conference calls? Let's find out.

Yet another upward revision
salesforce.com had revised its full-year revenue guidance twice since the initial range was given; but ahead of the report, sell-side analysts were expecting more. The average estimate (per Yahoo! Finance) for salesforce.com's full-year revenue going into the report was at $5.34 billion -- the high-end of the company's guidance of $5.3 billion-$5.34 billion issued last quarter. Well, today, yet another (not entirely unexpected) revision came in: salesforce.com is now guiding for $5.34 to $5.37 billion in sales for the current fiscal year. 

This full-year bump seems to have been driven by better-than-expected results during the just-reported fiscal 2015 second quarter. salesforce.com reported $1.32 billion in sales during the quarter, pushing right past management's previous guidance of $1.285-$1.29 billion, and even exceeding the highest analyst estimate (per Yahoo! Finance) of $1.3 billion.

That said, despite the great results for the fiscal second quarter, and the full-year guidance revision upward, the company's guidance for its fiscal 2015 third quarter came in at $1.365 billion-$1.37 billion, the midpoint of which actually falls ever-so-slightly short of sell-side analyst consensus of $1.37 billion (per Yahoo! Finance). 

Taking a look at earnings per share
Though revenue growth is great, it's also important to keep tabs on profits, too. salesforce.com reported non-GAAP, i.e. excluding share-based compensation, earnings per share of $0.13, beating the guidance of between $0.11 and $0.12 that the company issued last quarterFor the fiscal 2015 third quarter, salesforce.com guided to between $0.12 and $0.13 in non-GAAP earnings per share, falling a tad short of analyst consensus of $0.13. 

Finally, for the full year, salesforce.com is now guiding to non-GAAP earnings per share of between $0.50 and $0.52, a smidgen above the previously expected range of between $0.49 and $0.51. Unfortunately, this probably isn't much of a surprise, as sell-side analyst full-year non-GAAP earnings per share consensus sat at $0.51 going into the report. 

Is operating margin improving?
It's also worth checking up on the company's operating margin. As noted in the earnings preview, management told investors that it expects a 125 to 150 basis point improvement in non-GAAP operating margin during the current fiscal year. As noted in the preview, because operating margin last quarter declined slightly year over year, it's worth seeing if this trend has reversed.

salesforce.com reported $144.9 million in non-GAAP operating income during the most-recent quarter against sales of $1.32 billion, suggesting operating margin of approximately 11%, representing an improvement from 10.2% in the year-ago quarter.

Operating cash flow growth looks better than expected
The final item to look at is free cash flow. On the prior earnings call, CFO Keith Graham stated, "We anticipate our second quarter operating cash flow growth to be lower at approximately 10% year-over-year growth, and continue to expect our full-year operating cash flow to grow in the mid-20s percentage range year-over-year that we talked about on the call in February."

How did salesforce.com stack up against these expectations? According to the earnings release, operating cash flow was up 34% year over year, well ahead of the 10% number quoted above.

Foolish bottom line
It looks as though salesforce.com had a solid quarter, as revenue and operating cash flow for the quarter pushed past expectations, and full-year guidance was raised. The company also reported year-over-year operating margin expansion, giving investors hope that its previously stated operating margin growth target will be achieved.

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