If there's a growth slowdown on the way in the tech world, there's no hint of it yet in Microsoft's (MSFT 1.19%) operating results. The software titan's fiscal Q2 earnings report, which covers the selling period through late December, just revealed strong sales growth and improving profitability into 2022. CEO Satya Nadella and his team also issued a bullish short-term outlook that implies continued high demand for tech products in both the consumer and enterprise niches.
Executives issued an investor presentation along with their earnings press release and conference call that help explain why Microsoft is so optimistic about fiscal 2022 and beyond. Let's look at a few standout slides from that report.
Image source: Getty Images.
1. Diversity
Image source: Microsoft investor presentation.
Microsoft added $9 billion to its sales footprint in Q2, and the resulting $52 billion of revenue comfortably outpaced the growth that Wall Street had been expecting. The gains were broad-based, too.
The company's cloud services segment led the way higher, with demand for Azure helping power 26% gains. But Microsoft also noted strong demand for video games and PC software, both in the consumer and enterprise markets. "As tech as a percentage of global GDP continues to increase," Nadella said, "we are innovating and investing across diverse and growing markets."
2. Financial wins
Image source: Microsoft investor presentation.
Looking beyond the headline results, Microsoft's finances were stellar. Gross profit margin held steady at 67% of sales despite aggressive spending in areas like innovation and engineering salaries. Operating income jumped to $22 billion, compared with $18 billion a year ago, which pushed operating margin up to a blistering 43% of sales from 42% last year.
These wins trickled right down to the bottom line, where earnings per share jumped 22% after accounting for currency exchange rate shifts, or a bit faster than the 19% sales growth that shareholders enjoyed.
3. Cash returns
Image source: Microsoft investor presentation.
Executives were happy to highlight the growing rate of cash returns heading directly to shareholders. Microsoft returned $11 billion to investors this quarter, up 9% from last year. Most of that spending is coming from stock buybacks, which have crossed $12 billion over the past six months. Microsoft also pays a significant dividend payout of nearly $9 billion through the first half of fiscal 2022.
That spending is being supported by gushing cash flows, with operating cash jumping 16% to $14.5 billion in Q2.
Management issued a bullish outlook for the rest of the year that calls for continued sales growth and steadily improving profit margins. "We expect our differentiated market position, customer demand for our ... offerings, and consistent execution," CFO Amy Hood said, "to drive another strong quarter of revenue growth."
That outlook is good news for growth-focused investors, but it should also make Microsoft a more compelling buy for investors seeking more immediate returns. The software giant is gaining cash resources it can use to solidify its dominant market position in several growth niches, even as it spends more on stock buybacks and dividend payments. That's a formula for solid total returns over the long term.
