U.S. News

Adobe Profit Rises in Lull Before New Products

Exterior view of Adobe Systems Inc. headquarters in San Jose, Calif.
Paul Sakuma

Software maker Adobe Systems beat analysts' estimates with a 37% rise in quarterly profit on Tuesday, boosted by a tax credit that offset a sales decline ahead of an upgrade to its Creative Suite software bundle.

Shares of Adobe rose 3.5% in extended trade after the higher earnings were announced.

Adobe posted a net profit of $143.9 million, or 24 cents per diluted share, in its fiscal first-quarter, versus a profit of $105.1 million, or 17 cents per diluted share, in the year-ago quarter. Sales fell 1% to $649.4 million in the February quarter.

Excluding stock-based compensation and acquisition costs, earnings per share totaled 30 cents per share in the quarter. Analysts, on average, had forecast EPS of 29 cents on revenue of $655 million, according to Reuters Estimates.

Analysts expect the introduction in the current quarter of Creative Suite 3, which includes Photoshop and its Acrobat document creation software, to help turn around slumping sales at the creative segment, Adobe's largest business division.

The company forecast earnings per share to range between 34 cents per share and 36 cents per share for its fiscal second-quarter excluding stock-based compensation and acquisition costs. The company targeted second-quarter revenue of between $700 million and $740 million.

Wall Street analysts had, on average, forecast earnings per share of 35 cents per share on sales of $718.7 million, according to Reuters Estimates.

Adobe Chief Executive Bruce Chizen said there is significant pent-up demand for the Creative Suite upgrade, which unlike its predecessors will work with Apple newer computers running on Intel processors.

"This will end up being the biggest launch in Adobe's 25-year history," said Chizen in a telephone interview with Reuters. "We believe there is a great deal of pent-up demand."

The company expects the Creative Suite upgrade sales to push its fiscal third-quarter sales, a normally weak quarter for Adobe, above second-quarter revenue, according to Chizen.

On a conference call with analysts, the company said its fourth-quarter sales should be the highest sales quarter of its business year.

As of the close of trade  on Monday, shares of Adobe had fallen 2% since the start of 2007 versus a 1% decline on the S&P 500 during the same period. Adobe shares hit $42.15 in extended trading after closing on Nasdaq at $40.74.