UPDATE 3-Adobe 4th-qtr profit up 21 pct on strong revenue
(Adds details from conference call)
By Jim Finkle
BOSTON, Dec 17 (Reuters) - Adobe Systems Inc (ADBE.O) posted a 21 percent rise in fourth quarter net income on strong sales of its design software on Monday, but may have disappointed investors by sticking to its full-year outlook. Its shares fell in after-hours trading.
Even though the maker of Photoshop, Flash and Illustrator software gave a fiscal first quarter forecast that was above Wall Street expectations, investors were concerned sales growth could be hitting a peak soon as the world's largest maker of design software kept its fiscal 2008 revenue projection intact.
Net income rose to $222 million, or 38 cents per share, for its fiscal fourth quarter ended Nov. 30, on a reduced number of shares outstanding, from $183 million, or 30 cents, a year earlier.
Revenue grew 34 percent to $911 million, fueled by sales of software for editing photos, building Web sites and creating graphics.
Profit excluding items was 49 cents per share in the quarter, beating the average analyst target of 48 cents on a reduced number, according to Reuters Estimates.
"The results look solid," said Steve Ashley, an analyst with Robert Baird.
He said he was surprised the stock fell on the report, and said that could be because some investors were disappointed Adobe left its full-year forecast unchanged, even as its first-quarter forecast was above estimates.
Cowen & Co. analyst Walter Pritchard said that expenses were about $10 million higher than he had forecast during the quarter, due to legal costs.
He said that investors may have over-reacted to the higher-than-expected expenses, or that it could be linked to the full-year forecast.
Pritchard said that such a negative response was par for the course at a time when investors are generally pessimistic about the prospects for the economy and corporate earnings.
The broad U.S. stock market declined on Monday amid concerns that a persistent housing slump and surging prices present a serious threat to the U.S. economy.
But executives from Adobe said that such issues have not hurt sales of the company's software.
"We have not seen any negative economic impacts to our business," Chief Financial Officer Mark Garrett said in an interview with Reuters.
Adobe forecast fiscal first-quarter revenue of $855 million to $885 million, which would be down from the recently completed quarter but above the average Wall Street expectation of $837 million, according to Reuters Estimates.
Executives said on a conference call that they expect revenue to be flat from the first quarter to the second quarter and into the third quarter, but pick up going into the final quarter of Adobe's fiscal year.
The company said it expects first-quarter net earnings at 34 cents to 36 cents per share, or 44 cents to 46 cents after adjusting for special items. Analysts had been looking for earnings excluding items of 42 cents for the current quarter.
"The outlook looks good. The products are selling well," Pritchard said.
CREATIVE SUITE
Adobe's growth during the quarter was fueled by sales of programs in Creative Suite 3.
It introduced CS3, an upgrade from Creative Suite 2, in April. The product line included major upgrades to Photoshop for editing photos; Dreamweaver, Flash and Fireworks for building Web sites and Illustrator for creating drawings and designing graphics.
Chief Executive Shantanu Narayen said on a conference call that Adobe plans to introduce other upgrades in the second half of its fiscal year that "should allow us to close 2008 strong."
He added that the company will introduce Adobe AIR, a group of tools for developers to write programs for delivery over the Web, during the current fiscal year.
Garrett said in the interview that AIR will not be a significant revenue generator this year. The product upgrades will support growth in the second half of fiscal 2008, he said.
The company declined to identify the products it plans to release in the second half of the year, but Pritchard said it is likely to be programs in the Acrobat family.
Adobe reaffirmed its 2008 revenue growth target of 13 percent. It said it is targeting a GAAP operating margin of about 30 percent, and non-GAAP operating margin of about 39 percent.
It also said its board approved an increase of 30 million shares to its repurchase program announced last April, bringing the total to 50 million shares. As of Nov. 30, Adobe had bought back 17.7 million shares of the original authorization.
It had about 587.9 million weighted average shares in the fourth quarter, compared with about 602.2 million a year earlier.
The stock rose as high as $41.52 following the results, but quickly lost its gains and was around $40.60 in late extended trading. The stock closed regular trading down 2.9 percent at $40.90 on Nasdaq. (Additional reporting by Tiffany Wu; Editing by Jeffrey Benkoe and Carol Bishopric)
