Adobe Earnings Fall, Sees More Weakness
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By Siobhan Kennedy
NEW YORK (Reuters) - Publishing software maker Adobe Systems Inc. (Nasdaq:ADBE - news) on Wednesday said fiscal third-quarter net income dropped by nearly half and warned that fourth-quarter results would come in below analysts' expectations, sending its stock sharply lower.
The San Jose, California-based maker of Acrobat document-sharing software blamed a tough economic climate in the United States and a sudden and harsh slowdown in customer spending in Japan as reasons for the shortfall. Adobe did not factor in potential effects of last week's air attacks on the United States.
Adobe stock, which closed at $30 on Tuesday, dropped $5, or 16.6 percent to $25.10 in afternoon trading on the Nasdaq. Its 52-week low is $24.56, it 52-week high $87.31
The company, whose Acrobat software is a standard way to publish documents on the Internet, particularly forms to be printed and filled out, reduced fourth-quarter estimates primarily due to significant weakness in Japan, Adobe Chief Financial Officer Murray Demo said in a conference call.
``They basically stopped spending,'' Demo said. ``It happened very suddenly and it stayed down very hard and obviously was the big driver in the shortfall we had this quarter.
``We're going to make the assumption that it will continue to be weak,'' Demo added.
Abode said it now expected to post pro forma earnings, excluding charges, of 27 cents or 28 cents a share on revenues of $310 million to $320 million for the fourth quarter -- below the consensus estimates of analysts polled by Thomson Financial/First Call, who had expected Adobe to earn 31 cents a share on revenues of $352.2 million.
``Overall, it was a disappointing quarter,'' said Sasa Zorovic, an analyst with Robertson Stephens.
For its fiscal third quarter, ended August 31, Adobe's net income fell to $40.3 million, or 16 cents a share, from $78.3 million, or 31 cents a share, a year before.
Revenues fell to $292.1 million from $328.9 million.
Zorovic said he was surprised that Adobe cited weakness in Asia as being the main factor dragging down the quarter.
``That's really surprising because the economy there has been tough for a decade, and third quarter is traditionally strong for software companies,'' Zorovic said. He noted that Adobe's fourth-quarter guidance did not include any potential effects from last week's attacks on the United States.
``So the actual earnings could be worse,'' he said. ``It's just too early to tell.''
John McPeake, an analyst with Prudential Securities, agreed. ``It's a pretty low probability that they will make the types of numbers they're talking about,'' McPeake said.
McPeake said Adobe has had to make a lot of cost cuts to make its numbers in prior quarters. Employees were put on forced vacation and salespeople weren't given bonuses, he said.
``But I think they're approaching the limit of cost cuts they can make to make numbers,'' he said.
ACROBAT STILL STRONG
Software sales to creative professionals, those involved with designing books, newspapers and magazines, were hit hardest, while sales of flagship Acrobat data-sharing tools were strong, said Bruce Chizen, Adobe's chief executive.
Sales in that division rose 45 percent year-on-year, he said in the conference call. Meanwhile, sales in its other product divisions, which include the popular Illustrator and Photoshop software products, declined from the prior year.
``So I think what we'll see in Japan is what we expect to see in the rest of the world ... a lot of the growth will continue to be around Acrobat until the economy picks up significantly,'' Chizen said.
But when the economy picks up is anyone's guess, Chizen told Reuters. Prior to last week's attacks in New York and Washington, Chizen said Adobe believed its business had bottomed out in the United States.
``It's impossible for us to sit here today and talk about how last week's tragedy is going to impact the whole economy,'' Chizen said. ``If it does, it would certainly impact Adobe's business.''
Excluding one-time items, Adobe's pro forma net income was 28 cents per share, meeting the consensus estimate of analysts polled by First Call, who had expected the company to earn 28 cents a share on sales of $319.12 million. No year-ago comparison was immediately available.
Despite the disappointing results, Zorovic said he thought Adobe would be one of the first software companies to turn when the economy picks up.
``When the economy starts to turn you definitely want to own Adobe,'' Zorovic said.
Since the beginning of 2001, Adobe's stock has lost more than half its value, underperforming its peers in the Standard & Poor's Software Index by 66 percent. The index is down 21 percent over the same time period.
Adobe had been due to report third-quarter earnings last Thursday but postponed their release following the Sept. 11 attacks on the World Trade Center and the Pentagon (news - web sites). |
