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Earnings Preview: Adobe Systems - Analyst Blog

Adobe Systems Inc. ( ADBE ) is scheduled to announce its fourth quarter fiscal 2011 results on December 15, 2011 and we notice no movement in analyst estimates.

Prior-Quarter Synopsis

Adobe reported in line third quarter results, impacted by the weak European market but supported by the cost control initiatives taken by management.

Adobe's total revenue was $1.01 billion, down 1.0% sequentially, due to a sluggish European market, which impacted both the key CS and the Acrobat product lines.

Margins increased sequentially on account of cost savings and a favorable mix. The product gross margin, which is the primary reason for Adobe's high-margin profile, expanded 96 basis points sequentially.

Fourth Quarter Guidance

Adobe expects revenue to come in at around $1.075 billion to $1.125 billion (up 6.1% to 11.0% sequentially). The Zacks Consensus Estimate is pegged at $1.085 million.

The company has projected GAAP operating margin of 26.5-29.5%, non operating expense of $17-$21 million, a tax rate of 22% and share count of 497- 499 million, yielding a GAAP EPS of 41-50 cents. The Zacks Consensus Estimate is currently pegged at 50 cents per share, up a couple of cents since the company last reported. The surprise percentage has been improving over the past three quarters, which could be the reason for analysts raising estimates to the high end of the guided range

Agreement of Analysts

None of the 10 analysts covering the stock revised their estimates in the last 30 days. Even for fiscal 2011, there was no revision in the last 30 days.

Most of the analysts covering the stock expect revenue to come in line with the Street consensus of $1.090 million. They expect EPS to come in at $0.61, slightly ahead of the Street consensus of $0.60 on continued cost control measures taken by management.

However, the analysts are cautious about the foreign exchange headwinds and the high exposure of the company in Europe, which is stricken by a gloomy macroeconomic environment.

Magnitude of Estimate Revisions

For the fourth quarter, there was no change to the Zacks Consensus Estimate in the past 30 days. But it dropped a penny to 49 cents in the past ninety days.

For fiscal 2011, the Zacks Consensus Estimate dropped a penny to $1.84 in the past ninety days.

Recommendation

We believe Adobe will come out with decent fourth quarter results owing to its cost cutting efforts and improved execution. The company's compelling product lines, continued innovation and improving product portfolio will provide a competitive edge.

We believe that the ramp up of Creative Suite 6 and solid initial adoption of Creative Cloud could be potential catalysts.

Recently, Adobe signed a definitive agreement to acquire Efficient Frontier. The proposed acquisition will enhance the company's Digital Marketing suite by adding optimization capabilities for search and display advertising while accelerating its entry into social advertising.

However, we believe that unfavorable foreign currency fluctuations, European exposure and strong competition from Apple Inc. ( APPL ) and Microsoft Corp. ( MSFT ) could affect results in the upcoming quarter.

Adobe shares currently have a Zacks Rank of #4, implying a short-term Sell recommendation.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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