Dassault Systemes shares fall after FY24 guidance cut amid automotive weakness

Investing.com — Shares of Dassault Systemes (EPA:DAST) fell after the company announced a downward revision to its fiscal year guidance, citing weaker-than-expected results primarily driven by challenges in the automotive sector. 

At 4:40 am (0840 GMT), Dassault Systemes was trading 2.7% lower at €32.25.

Despite previous indications that the company’s guidance had been de-risked in September, the latest earnings report posted total software revenue that missed consensus estimates by approximately 1.5%. 

This shortfall was largely due to lower-than-expected performance in subscription and support services, which was only partially offset by higher-than-anticipated license revenue.

“We suspect with continued negative sentiment around key end verticals the growth acceleration expectation would remain in question, including for view into 2025,” said analysts at Citi Research in a note.

Breaking down the performance by product segment, the industrial division saw a 1% decline, impacted by tough comparisons with last year’s figures at Jaguar Land Rover. 

Meanwhile, the life sciences segment, predominantly driven by Medidata, remained flat, with only a modest sequential improvement of 3 percentage points. 

In contrast, the mainstream product line emerged as a highlight, experiencing a 15% increase compared to an 8% growth in constant currency from the previous quarter, bolstered by notable competitive wins for Centric PLM. 

However, these positive developments were insufficient to offset the overall revenue miss, resulting in total revenue coming in 1% below expectations.

The impact of the revenue shortfall was reflected in the company’s profit and loss statement, with adjusted EBIT falling 2% short of projections. Interestingly, net income increased, attributed to a more favorable tax rate. However, this led to yet another quarter of disappointing cash flow, with net cash flow from operations arriving approximately 13% below consensus estimates.

Dassault has revised its fiscal year 2024 guidance, now projecting growth between 5% and 7%, down from an earlier forecast of 6% to 8%. 

The company has maintained its earnings per share outlook at €1.27 to €1.30, despite the lowered revenue expectations. 

This decision to lower guidance late in the year signals an adjustment for the fourth quarter. 

“We think previous 4Q24 software growth of c14% has now been cut to 9% (vs 4% in the YTD) and the 8% range in 4Q software guidance (equivalent to €120m) shows the ongoing uncertainty,” said analysts at Jefferies in a note. 

Jefferies added these developments raise concerns for Dassault, as it faces competition from companies with greater financial resources. 

Dassault may either have to engage in bidding wars at higher valuations or risk losing key assets to its competitors. Neither option appears to be an ideal outcome for the company.