Microsoft cut its near-term earnings forecast Thursday, citing the headwind impact of the strongest U.S. dollar in more than two decades.
Updated at 9:51 am EST
Microsoft (MSFT) – Get Microsoft Corporation Report shares slumped lower Thursday after the tech giant cut its near-term earnings forecast thanks in part to headwinds linked to the strength of the U.S. dollar.
In an end-May trading update published on its website, Microsoft said it sees current quarter revenues in the region of $51.94 billion to $54.74 billion, with operating income of between $20.6 billion to $21.3 billion. Earnings will likely come in between $2.24 and $2.32 per share, Microsoft said, down from its April estimate of $2.28 to $2.35 per share.
Microsoft earned just over half of its $168.1 billion in 2021 revenues from overseas markets, according to the group’s latest annual report, with international growth outpacing domestic by around 300 basis points.
The U.S. dollar index, which tracks the greenback against a basket of six global currency peers, hit a 20-year high of 104.85 last month and is up more than 13.3% from the same period last year.
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Microsoft shares were marked 2% lower in early trading immediately following the guidance update to change hands at $266.85 each, a move that would extend the stock’s year-to-date decline to around 20%.
Microsoft had forecast stronger-than-expected revenue growth for its key divisions when it topped third quarter earnings forecasts in late April, offsetting concerns over the pace of gains in its Azure cloud offering.
Third quarter revenues for Azure, its flagship cloud offering, rose 46% from last year — but flat to the December quarter — helping overall group sale rise 18% to a record $49.4 billion for the three months ending in March, Microsoft’s fiscal third quarter.
Microsoft’s adjusted earnings rose 13.8% from last year to $2.22 per share, just ahead of the Street consensus forecast of $2.19 per share.
“The U.S. dollar strengthened throughout the quarter and created an incremental one-point FX headwind to total company revenue compared to expectations,” CFO Amy Hood told investors on April 26. “With the stronger U.S. dollar and based on current rates, we now expect FX to decrease total company revenue growth by approximately two points and to decrease total COGS and operating expense growth by approximately one point.”
Earlier this week, Salesforce (CRM) – Get Salesforce, Inc. Report noted that “unprecedented foreign exchange volatility” would likely keep second quarter revenues in the region of $7.69 billion to $7.7 billion, and full-year revenues muted at between $31.7 billion and $31.8 billion.
The impact partially offset a stronger-than-expected first quarter earnings report powered by demand for its work-flow solutions, particularly from companies looking to incorporate hybrid work, continues to grow.
