Siobhan Kennedy
NEW YORK: Publishing software maker Adobe Systems Inc. on Thursday said
fiscal fourth-quarter net income fell by more than half as revenues came in
below estimates amid a sharp fall in software spending after the Sept. 11
attacks.
The San Jose, California-based maker of the popular Photoshop and Illustrator
publishing products as well as Acrobat document sharing software, posted net
earnings that fell 56 percent from the prior year, as the economic slump forced
graphics designers and creative professionals to drastically curtail their
software spending.
"Clearly the company's facing macro challenges," Gibboney Huske, an
analyst with Credit Suisse First Boston said. "The bottom line is, it
(Adobe) is highly correlated with advertising and other marketing spending and
those are closely linked to the economy."
Adobe posted net profit of $34.3 million, or 14 cents a share, down from
$79.2 million, or 31 cents, last year. Revenues fell to $264.5 million from
$355.2 million, below the company's own estimates of revenues between $275
million and $285 million.
The company's shares, which closed the regular trading session on Nasdaq down
3.62 percent, at $30.63, fell almost a dollar in after-hours trading to $29.87,
according to Instinet. Adobe's stock has lost almost half its value since
January 2001.
Adobe -- which had previously said October was the worst month in its history
following the Sept. 11 air attacks -- said things worsened in November as
customers continued to delay spending decisions. But provided conditions don't
get any worse than the last three months, Adobe is sticking by its previously
announced forecast for the full year 2002, Bruce Chizen, Adobe's chief executive
told analysts on a conference call.
"Those assumptions are based on the economic conditions we experienced
in Q4," Chizen said. "Clearly if the economy gets worse we'll have to
go back and revise those targets." Those estimates call for the company to
post pro forma earnings of $1.03 a share on total revenue of $1.3 billion.
In addition, Adobe said its expects to post first-quarter earnings, before
charges, in the range of 20 cents to 22 cents a share, on revenues in the range
of $265 million to $280 million. Analysts, on average, were expecting Adobe to
post earnings of 23 cents a share in the quarter, according to Thomson
Financial/First Call.
Analysts skeptical of guidance
Analysts, who repeatedly pushed Adobe for more financial details, said they
would not be surprised if the company didn't meet its forecasts. "They're
looking for a lot of things to go their way to get to the $1.3 billion, it could
happen but the probability of it happening has clearly declined," Huske
said.
Analysts point to the fact that Adobe was twice forced to lower its fourth
quarter guidance, once in September and again in October, as evidence that
things could get tougher.
Thanks to those tweaks, Adobe managed to post pro forma earnings -- excluding
a $12.1 million restructuring charge for cutting 8 percent of its staff during
the quarter -- in line with its own expectations. Pro forma income fell to $67.9
million, or 20 cents from $127.5 million or 34 cents a share last year.
In October, the company said it expected to post earnings in the range of 20
cents to 22 cents a share. That was down from the previous month's projections
of earnings in the range of 27 cents to 28 cents on revenue of $310 million to
$320 million.
New products coming
The introduction of a slew of new software products early next year, coupled
with the reorganization of its salesforce, should ensure that Adobe manages to
hit its targets, Chizen told Reuters.
He pointed to the 41 per cent year over year growth in its Acrobat software
line, even in a tough economy, as evidence of Adobe's strength.
Acrobat is a standard way to publish documents on the Internet, particularly
forms to be printed and filled out, Chizen said. As more and more companies look
to rid themselves of their mounds of paper documents, sales of Acrobat should
soar, Chizen said.
But those gains are being offset by declines in its other software lines,
particularly those products used by creative professionals to design marketing
brochures, leaflets and advertising campaigns. As the economic slump worsens,
companies are continuing to cut back on spending in those areas, Chizen said.
"What's so challenging is it's hard to call a bottom," CSFB's Huske
said, referring to a future point in time when advertising spending might start
to pick up.
"It's too hard to say right now, there's too many mixed signals."
That said, Adobe has managed to weather the economic storm much better than the
majority of its peers in the hard hit technology sector, Huske added. For the
full year 2001 revenues declined 3 percent and earnings per share increased 2.5
per cent to $1.15 from $1.12.
"That's pretty darn good," Huske said. "It shows the overall
strength of the company and gives you greater confidence that when things get
better you're going to see performance really improve."
(C) Reuters Limited.