Will Top-Line Expansion Improve Workday's Q2 Earnings?

Workday, Inc. WDAY is set to release second-quarter fiscal 2025 results on Aug 22, after the closing bell. It pulled off a trailing four-quarter earnings surprise of 10.89%, on average.

Based in Pleasanton, CA, WDAY is expected to have recorded higher revenues on the back of solid demand for its human capital management (HCM) and financial management solutions across different end markets.

Factors at Play

During the quarter, Workday witnessed solid traction for the Workday Government Cloud solution as U.S. federal entities speed up their HR process modernization efforts. The Workday Government Cloud offers essential tools and insights, enabling organizations to optimize their workforce efficiently. Defense Intelligence Agency and a prominent U.S. federal organization have opted to utilize Workday Government Cloud to enhance and streamline their HR processes. This is likely to have generated incremental revenues in the second quarter.

In the quarter under review, WDAY collaborated with Google to expedite intelligent AI native app development in the Workday Extend platform. Under this collaboration, the company also launched its technology platforms in the Google Cloud Marketplace.

The company also inked a strategic partnership with Salesforce to develop a cutting-edge artificial intelligence employee service agent that will revolutionize workplace efficiency and employee satisfaction. The collaboration with the industry leader is likely to have expanded Workday's portfolio and improved its commercial prospects.

In the fiscal second quarter, Clemson University opted to deploy its comprehensive solution suite to accelerate digital transformation across university operations. The solution suite includes Workday Financial Management, Human Capital Management and Workday Strategic Sourcing solutions. This is likely to have had a positive impact on Workday's second-quarter performance.

Our estimate for Subscription Services revenues is pegged at $1.89 billion, suggesting 16.7% year-over-year growth. Our estimate for Professional Services revenues is pegged at $174.6 million.

For the July quarter, the Zacks Consensus Estimate for revenues is pegged at $2.07 billion, suggesting an increase from the year-ago quarter's reported figure of $1.79 billion. The consensus estimate for adjusted earnings per share is pegged at $1.63, calling for an increase from $1.43 reported in the prior year.

Earnings Whispers

Our proven model does not predict an earnings beat for Workday for the fiscal second quarter. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. This is not the case here.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is 0.00%, with both pegged at $1.63.

Stocks to Consider

Here are some companies you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this season:

TJX Companies, Inc. TJX is set to release quarterly numbers on Aug 21. It has an Earnings ESP of +3.62% and a Zacks Rank #3.

Lancaster Colony Corporation LANC is scheduled to report quarterly numbers on Aug 22. It has an Earnings ESP of +1.07% and carries a Zacks Rank of 3.

The Earnings ESP for Dycom Industries DY is +6.26%. The company carries a Zacks Rank of 3. The company is scheduled to report quarterly numbers on Aug 21.

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