Adobe Shares Fall After 1Q Profit Drop

Thursday, March 23rd 2006, 10:56 am

By: News On 6

SAN FRANCISCO (AP) _ Shares of Adobe Systems Inc. fell Thursday after the software maker said its first-quarter profit fell 31 percent, a drop it blamed largely on expenses stemming from its acquisition of Macromedia.

The company also offered a soft income outlook and a revenue target for the current quarter that was below Wall Street's estimates.

Adobe shares dipped 75 cents, or 2 percent, to $35.87 in early trading Thursday on the Nasdaq Stock Market. Adobe released its earnings Wednesday after financial markets closed.

In December, Adobe completed its acquisition of software-maker Macromedia Inc., a deal that was valued at $3.4 billion when it was announced last April.

Investors ``were expecting the combined company was going to create new revenue from being a combined company,'' Gene Munster, an analyst with Piper Jaffray, said Wednesday. ``That's taking longer than people had anticipated.''

Net income for the quarter ending March 3 was $105.1 million, or 17 cents per share, down from $151.9 million, or 30 cents per share in the same period last year. Revenue rose to $655.5 million, up 39 percent from $472.9 million.

Excluding various expenses, profit was 32 cents per share, topping analyst estimates. Analysts polled by Thomson Financial expected the company to earn 29 cents per share on $650.27 million in revenue.

Adobe said earnings before certain costs in the current quarter would be 30 cents to 32 cents, compared with a consensus estimate of 32 cents. The San Jose, Calif.-based company forecast revenue for the current quarter of $640 million to $670 million, below the consensus estimate of $675.7 million.

Adobe's chief operating officer, Shantanu Narayen, blamed much of the expected sales shortfall on accounting rules that will prevent Adobe from recognizing about $60 million of Macromedia revenue for 2006. In January the company had said the number would be about $50 million.

The overseas exchange rate for the dollar, which has diminished the value of the dollar relative to other currencies, is also contributing to the lower-than-expected forecast, one analyst said.

Chief Financial Officer Murray Demo said first-quarter revenue would have been $25 million more had exchange rates this year been the same as in 2005. The rate is likely to reduce sales this quarter by about $20 million, said Jamie Friedman, a senior analyst at Soleil Securities.

For the full year, the company backed previous forecasts for $2.7 billion in revenue. That was in line with a consensus estimate of $2.72 billion.

``I'm feeling good about what we've done,'' Narayen said in an interview. ``We're right on target with respect to what we've been saying.''

The company has completed its work force reduction resulting from its acquisition of Macromedia and now plans to begin hiring in locations throughout the world, said Narayen, who declined to give a number. The company had 5,480 workers at the end of the first quarter.