Microsoft (MSFT) shares traded today after the company lowered its revenue and profit expectations for the current quarter due to foreign currency headwinds. This follows the reduction in full-year revenue for the same reason at Salesforce (CRM) just a few days ago, and at the time we noticed that we were likely to see more companies doing the same in the coming weeks.
While that didn’t knock us out of the seat, we’re somewhat surprised that about a month into the quarter, Microsoft made the announcement today. In terms of actual revenue and EPS reduction, it’s not that important:
– EPS for the current quarter is now expected to be $2.24-$2.32 compared to the previous outlook of $2.28-$2.35
– Revenue for the period is now expected to be $51.94-52.74 billion, versus earlier guidance of $52.4-53.2 billion.
These are “marginal” cuts in our view, and again, chances are that Salesforce and Microsoft aren’t the only two companies revising their expectations. We expect others to follow either as the wave of June investor conferences unfolds or closer to the end of June to fully account for the movement of the dollar over the course of the current quarter.
A strong dollar
With the Fed poised to raise interest rates further in the coming months and other central banks lagging, notably the European Central Bank, we should see continued dollar strength. This means that the currency headwinds we are hearing about for the current quarter are likely to persist into the second half of the year, creating another reason why EPS expectations are likely to be reduced from those of a few years ago. barely months.
In our view, Microsoft’s announcement on the impact of exchange rates does not inject a significant level of new uncertainty into the stock market, rather it is another log thrown into the fire of uncertainty. This is especially the case for companies with significant international exposure. This is also another reason for us to keep our reverse ETF positions in play.
While we recognize this headwind, we will continue to focus on operating the components of the AAP portfolio. In Microsoft’s case, very recent feedback from HP (HPQ) and Dell (DELL) indicates strong demand for PCs, especially high-end models, and businesses continue to adopt the cloud.
While we have several portfolio holdings with US-centric companies including Chipotle Mexican Grill (CMG), American Water Works (AWK), United Rentals (URI) and AMN Healthcare (AMN), we will review the latest filings quarterly to determine national and international exposures.