High-tech company Adobe Systems Inc. (ADBE) has issued guidance for the company’s first quarter, ending February 28, 2009, forecasting a decline in revenues and projecting profits exceeding company and analysts previous expectations.
Guidance for the second quarter was also issued, with the company expecting a further decline in revenues but only a modest reduction in earnings.
Adobe is a leading provider of software for creative, business and mobile applications. The company’s customers include creative professionals, knowledge workers, consumers, original equipment manufacturers (OEM) developers and enterprises. Among the company’s primary products are Photoshop, Flash and Acrobat.
In its pre-earnings release statement, Adobe projected revenues for the first quarter in the range of $783-$786 million. Analysts were expecting revenues of $795 million, and the company had previously forecast revenues of $800 million.
In spite of the revenue shortfall, earnings at the company for the quarter are projected by Adobe to reach 44 cents to 45 cents per share. Analysts had been looking for earnings of 41 cents.
Second-quarter revenues and earnings are projected by the company to continue to fall. Revenues are expected in the range of $675 million to $725 million, versus analysts’ forecast of revenues at $778 million.
So, how does the market react to this latest report of revenue decline at a consumer product company? Not what you have come to expect from other similar reports.
The market responded to the news by driving up the stock price by over 5%, while analysts at least three different firms have upped the company’s rating. Jefferies Group (JEF) moved ADBE from a Hold to a Buy; UBS AG (UBS) increased the rating from Buy; and Friedman Billings Ramsey (FBR) moved to Market Perform from Market Underperform.
The market reaction and the analysts’ responses are testimonial to the value the market places on effective management. Adobe has impressed with its willingness to reduce expenses when revenues are falling, a reaction not common among many high tech firms.
Microsoft (MSFT), as an example, has been hurt in the marketplace by the perception that they have been too slow to reduce expenses to a level appropriate to the level of revenue being received.
Adobe reduced its staff by 500 in December, and has announced plans for a further reduction in expenses by around $30 million in the next few months. These kinds of moves are giving investors’ confidence in company leadership.
Also contributing to investor confidence in the ability of the company to weather the storm are the financial ratios. With a current ratio of nearly 4 to 1 and a long term debt to equity ratio of less than .10, Adobe is well capitalized for a difficult period ahead.
This article was written by Jamie Dlugosch, contributor to InvestorPlace Media. For more actionable insights likes this, visit www.InvestorPlace.com.
