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Tickers in this Article: ADBE, NKE, MSFT, HPQ
Record revenue for its existing product line and a major product launch should make Adobe Systems(Nasdaq:ADBE) a good bet for the next year.

The Numbers

Adobe reported a 7% decline in earnings last week but beat estimates by Wall Street analysts. The company reported revenue of $887.3 million and GAAP diluted earnings per share of 35 cents. Although the stock fell after Adobe wouldn't provide guidance for 2009, the company is one of the few bright spots in a dismal earnings season. (Do you like to dig into a company's financials? Be sure to check out Understanding The Income Statement.)

The quarter was led by record revenue for the Acrobat and LiveCycle product lines. Acrobat is Adobe's traditional product line of document creation and viewing, while LiveCycle is the enterprise-scale software product that includes "data capture, information assurance, document output, process management and content services".

Non-GAAP diluted earnings per share for Q3 of fiscal 2008 were 50 cents. Adobe calculates non-GAAP measures by adding back stock compensation expense and the amortization of intangibles and deducting 4 cents due to the resolution of a tax audit. Analysts were expecting the company to earn 46 cents per share on revenues of $877 million.

Going Forward

Adobe also released guidance for Q4 of fiscal 2008. The guidance is based on flat currency assumptions and includes:

  • Revenue of $925-955 million;
  • Operating margin of 30.5% on a GAAP basis;
  • Operating margin of 39.5% on a non-GAAP basis;
  • Diluted earnings per share of 39-41 cents on a GAAP basis; and
  • Diluted earnings per share of 51-53 cents on a non-GAAP basis. (Margins are important. To that end, be sure to see Analyzing Operating Margins.)

    Management wouldn't give any targets for fiscal 2009 "given the uncertain global economic and currency environment."

    Other Notable Items During The Quarter

    Adobe ended the quarter with cash and short-term investments of $2 billion. Currency exchange provided a net benefit to revenue of $39 million on a year-over-year basis, but a $4 million detriment sequentially.

    On September 23, Adobe launched the latest version of its Creative Suite 4 product line, calling it the largest product launch in its history. The product is "a collection of software tools for graphic design, photo and video editing and website development". Individual products included in Creative Suite 4 are Photoshop, Illustrator, InDesign, Flash and Dreamweaver.

    Buyback

    The company also repurchased 3.7 million shares in the quarter at a total cost of $147.7 million. The existing authorization is for 50 million shares. (Does the topic of stock buybacks sound interesting? Check out A Breakdown Of Stock Buybacks.)

    Several other companies have announced large buybacks recently. Microsoft (Nasdaq:MSFT) is authorizing a $40 billion share buyback over five years.

    The board at Hewlett-Packard (NYSE:HPQ) authorized an additional $8 billion for share repurchases. The company had $3 billion left on a previous program of $8 billion from 2007. Nike (NYSE:NKE) approved a $5 billion program to repurchase shares of its Class B common stock. The new program will commence after completing the current $3 billion share-repurchase program.

    Bottom Line
    Adobe's recent earnings release, which showed continuing strength in its existing product line, and the release of Creative Suite 4, an upgrade to its popular line of design-tools software, will keep earnings moving higher at this company.


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