March 4, 2009 / 9:51 PM / 9 years ago

UPDATE 2-Adobe sees Q1 profit beating expectations

* Sees adjusted Q1 EPS at 44-45 cents, beating Street view

* Sees Q1 revs $783-786 mln, missing Street view $795 mln

* Sees Q2 rev $675-725 mln, missing Street view $778 mln

* Says cost-cutting helped offset revenue shortfall

* Shares rise about 7 pct (Adds estimates, analyst comment, byline. Updates shares)

By Jim Finkle

BOSTON, March 4 (Reuters) - Software maker Adobe Systems Inc (ADBE.O) said it expects its first quarter earnings to beat expectations thanks to cost-cutting measures that helped offset a revenue shortfall, and its shares rose about 7 percent.

The maker of Photoshop, Flash and Acrobat software said on Wednesday that based on preliminary financial information it expects net income of 30 cents a share, and earnings, excluding items, of 44 cents to 45 cents per share for its fiscal first quarter ended Feb. 27. That would beat the 41 cent average analyst forecast, according to Reuters Estimates.

But Adobe forecast revenue at between $783 million to $786 million in the quarter, below the $795 million Wall Street estimate and below the company’s previous target of $800 million to $850 million.

Adobe cited weak sales of its new line of programs for creative professionals, dubbed CS4, as well as disappointing sales of a recent upgrade to its Acrobat document imaging programs as the primary reasons for its revenue shortfall.

Adobe said it was targeting second-quarter revenue of between $675 million and $725 million. This would miss the average analyst forecast of $778 million.

Global Equities Research analyst Trip Chowdhry said CS4 sales fell short primarily because the product is difficult to learn and only runs smoothly on expensive computers. CS4 includes software for building websites, editing photos and drawing illustrations.

“Adobe will mask it and try to blame it on the economy, but our research says there is a fundamental problem in the product design, which was exacerbated by the economy,” Chowdhry said.

While he does not expect Adobe to introduce an upgrade to CS4 until the middle of next year, he said that the company should be able to continue to keep profits on track through the end of this year by expanding its cost-cutting efforts.

    Executives at Adobe, which announced 600 job cuts in December, were not available for comment.

    A member of Adobe’s public relations team said executives would not elaborate on the preliminary results until March 17, when the company issues final results for the quarter.

    In the company’s news release, Chief Executive Shantanu Narayen said: “Despite worsening market conditions, we were able to manage expenses to deliver earnings and margin results within the target ranges we provided at the outset of the quarter.”

    Adobe also said it expects to report a first-quarter non-GAAP operating margin of 37 percent to 38 percent, in line with a forecast it issued on Dec. 3.

    It said it is targeting a second quarter non-GAAP operating margin of 32 percent to 36 percent.

    Shares in the San Jose, California-based company rose to $17.50 in late electronic trading, up from their Nasdaq close of $16.32.

    The stock has lost about 18 percent of its value over the past month, versus an 11 percent drop in the Nasdaq Composite Index .IXIC. It fell as analysts cut earnings forecasts and downgraded recommendations on the stock, predicting that sales of CS4 would disappoint.

    Adobe did not break out sales of that product in Wednesday’s release. (Reporting by Jim Finkle; editing by Jeffrey Benkoe and Carol Bishopric)

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