Adobe Systems Inc
) has reported second quarter 2012 earnings of 49 cents per share,
beating the Zacks Consensus Estimate of 48 cents. The results
reflect stronger revenue across segments, with particular strength
in Creative Suite and Digital Marketing Suite businesses. The
adjusted earnings per share exclude one-time items, but include
stock-based compensation expense.
Adobe's total revenue was $1.124 billion, up 7.6% sequentially
and 9.9% year over year. The result was on the higher end of the
management's expectation range of $1.09 billion to 1.14 billion.
The successful launch of Creative Cloud and Creative Suite 6,
strong Acrobat revenue and better-than-expected growth in Digital
Marketing Suite business led to the strength in revenue.
Products generated 77.5% of Adobe's revenue, and was up 7.7%
sequentially and 4.9% year over year. Subscription revenue
comprised 14.2%, up 9.2% sequentially and 45.7% from the year-ago
quarter. Services & Support brought in the balance, increasing
3.8% sequentially and 12.2% year over year.
Revenue by Segment
Digital Media Solutions
segment, which remains Adobe's largest, generated 72.8% of revenue
in the quarter. Segment revenue was up 12.1% sequentially and 8.5%
year over year from the prior-year quarter at $818.4 million. The
company launched CS6 and Creative Cloud at the end of the quarter,
and the performance was in line with management's expectations
despite some softness in Europe. Management was quite optimistic
about the CS6 and Creative Cloud adoption. Within Digital Media,
Document Services revenue was $206.7 million versus $184.3 million
in the year-ago quarter and $183.3 million in the previous quarter.
The segment had a record quarter, thanks to strong volume licensing
of Acrobat as well as continued momentum with EchoSign and other
document exchange services.
Digital Marketing segment
was down 3.5% sequentially but up 16.6% year over year at $250.9
million. This segment accounted for 22.3% of the total second
quarter revenue. Within the segment, Digital Marketing Suite
revenue was up 35% from the year-ago quarter at 189.9 million,
aided by the acquisition of Efficient Frontier. Excluding Efficient
Frontier, Digital Marketing Suite revenue grew more than 20% year
over year. Mobile transactions increased to 17%, up from 14% in the
Print and Publishing
brought in the remaining 4.9% of revenue, up 0.2% sequentially and
2.0% from the prior-year quarter at $55.1 million.
Revenue by Geography
In the second quarter, Americas remained the largest contributor
to Adobe's revenues, with a share of around 49%. Europe accounted
for another 29%, with the balance coming from Asia. Stable demand
in the U.S. and Asia was partially offset by some softness in
Reported gross margin for the quarter was 88.4%, down 90 bps
from 89.3% in the comparable year-ago quarter. The gross margin is
typical of a software company and variations are generally related
to the mix of revenues between categories.
Adobe reported operating expenses of $688.4 million, which were
8.0% higher than the year-ago quarter's $637.3 million. Operating
margin was 27.1%, which was slightly up from 27.0% in the year-ago
quarter. As a percentage of sales, research and development
declined, while sales and marketing, and general and administrative
On a fully diluted GAAP basis, Adobe recorded a net income of
$223.9 million (45 cents per share) compared to $229.4 million (45
cents per share) in the year-ago quarter and $185.2 million (37
cents per share) in the previous quarter.
On a pro forma basis, Adobe generated a net income of $245.7
million compared to $240.5 million in the comparable quarter last
year and 209.9 million in the previous quarter. The fully diluted
pro forma earnings per share came in at 49 cents, compared to 48
cents in the year-ago quarter and 42 cents in the previous
Adobe ended the second quarter with a cash and investments
balance of $2.99 billion versus $2.77 billion in the previous
quarter. Cash and investments were around 31.9% of total assets at
quarter-end. Deferred revenue was $592.8 million, up by $43.9
Cash generated from operations was $448.2 million and capital
expenditure was $60.8 million. The company also repurchased
approximately 5.3 million shares at a total cost of $175.7
Adobe provided guidance for the third quarter and updated its
fiscal 2012 projection on both GAAP and non-GAAP basis.
For the third quarter, management expects revenue in the range
of $1.075 billion to $1.125 billion. Additionally, management
expects continued softness in Europe and expects Digital Media
segment to be down sequentially. In the Digital Marketing segment,
management expects Digital Marketing Suite revenue to grow
sequentially, offset by a slight sequential decline in legacy
Enterprise products. The Print and Publishing segment is expected
to be relatively flat.
Accordingly, based on a share count of 501-502 million, GAAP EPS
is expected at 38 cents to 43 cents, including stock-based
compensation of 16 cents, intangibles amortization charges of 6
cents and income tax adjustment of 4 cents, excluding all of which,
non GAAP EPS is expected to be 56-61 cents. Currently, the Zacks
Consensus Estimate for the upcoming quarter is pegged at 49
Also for the third quarter, non-operating expense is expected in
the range of $18-$20 million. The tax rate is expected to be
approximately 23.5% on a GAAP basis and 22.5% on a non-GAAP
For the full year, Adobe narrowed its revenue growth guidance to
a range of 6-7%, versus its prior range of 6-8%. GAAP earnings
guidance was adjusted to $1.69-$1.76 versus its prior expectation
of $1.63-$1.73 and non-GAAP earnings to $2.40-$2.46 from
We find Adobe's second quarter results impressive, as the bottom
line exceeded the Zacks Consensus Estimate. We remain positive
about Adobe's market position, its compelling product lines
(including CS cloud initiative and digital media products),
continued innovation and strong balance sheet.
Also, the solid initial adoption of Creative Suite 6 and
Creative Cloud was encouraging in the quarter and could serve as
potential catalysts going forward. Adobe's acquisition of Efficient
Frontier will further enhance its Digital Marketing suite by adding
optimization capabilities for search and display advertising while
accelerating its entry into social advertising.
However, the end market recovery appears slow and a weak demand
environment in Europe remains a matter of concern. Additionally,
the company faces strong competition from
Adobe shares currently have a Zacks Rank of #4, implying a Sell
ADOBE SYSTEMS (ADBE): Free Stock Analysis
(APPL): ETF Research Reports
MICROSOFT CORP (MSFT): Free Stock Analysis
To read this article on Zacks.com click here.