Adobe Cruises Past Estimates: Are New Stock Highs Coming?

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Adobe Systems Inc. (NASDAQ:ADBE) shares are indicated higher in after-hours trading after the company posted earnings.  Adobe posted record revenue of 41% over 2006 at $851.7 million, compared to $602.2 million reported for the third quarter of fiscal 2006 and $745.6 million reported in the second quarter of fiscal 2007.  Adobe’s third quarter revenue target range was $760 to $800 million, and estimates were almost $790 million.

Non-GAAP diluted earnings per share for the third quarter of fiscal 2007 were $0.45. This compares with non-GAAP diluted earnings per share of $0.29 reported in the third quarter of fiscal 2006, and non-GAAP diluted earnings per share of $0.37 reported in the second quarter of fiscal 2007. Adobe’s third quarter non-GAAP earnings per share target range was $0.39 to $0.41, and estimates were $0.40 EPS.  Adobe’s non-GAAP operating income was $340.9 million in the third quarter of fiscal 2007, compared to $207.2 million in the third quarter of fiscal 2006 and $282.1 million in the second quarter of fiscal 2007.

Non-GAAP net income was $269.4 million for the third quarter of fiscal 2007, compared to $171.5 million in the third quarter of fiscal 2006, and $223.2 million in the second quarter of fiscal 2007.  As a percent of revenue, non-GAAP operating income in the third quarter of fiscal 2007 was 40%.

Bruce Chizen, chief executive officer of Adobe: "Our record results were driven by outstanding Creative Suite 3 adoption and continued Acrobat momentum.  As we near the end of fiscal 2007, we remain well positioned for continued double digit revenue growth."

Fourth Quarter GUIDANCE:  For the fourth quarter of fiscal 2007, Adobe announced it is targeting revenue of $860 million to $890 million with GAAP operating margin of approximately 30% to 31%. On a non-GAAP basis, the Company is targeting an operating margin of approximately 41%. GAAP earnings per share target range of approximately $0.35 to $0.37 and non-GAAP it is targeting earnings per share of approximately $0.46 to $0.48.  STREET ESTIMATES ARE $0.44 on revenues of $843 million, so the company still appears to be firing perfectly on all cylinders.

Shares closed down 0.8% in normal trade at $43.06, but shares are up almost 4% at $44.70 in after-hours activity.  The prior 52-week high is $44.92, so these after-hours levels will be critical for technicians tomorrow.

Jon C. Ogg
September 17, 2007