Earnings Preview: Adobe Systems

Adobe Systems (ADBE) is expected to report Q2 earnings after the market close on Tuesday, June 16, with a conference call scheduled for 5:00 pm ET.

Guidance

The consensus estimate is 35c for EPS and $694.75M for revenue, according to First Call. The company has been able to top quarterly expectations in each of the last four quarters. On its last earnings call, Adobe management provided Q2 guidance of 31c to 38c in EPS and revenue of $675M to $725M.

Analyst Views

Also on that call, Adobe CFO Mark Garrett had had reported that the company has seen its business stabilize since early February, and added that Adobe's North America business is "closer to a bottom." The recession has slowed demand in the past couple of quarters for Adobe's Creative Suite 4, or CS4, the newest version of the software package that brings in the majority of the company's revenue. But analysts now say that demand for the product looks to be improving amid hopes for an economic recovery.

In a June 10 note, Jefferies analyst Ross MacMillan said that a recent survey by Jefferies "suggests that creative professionals continue to adopt CS4 at a steady pace and there is an increase in the number of individuals that intend to upgrade."

Based on Piper's US distributor checks and NPD data the firm expects slight upside on revenue and EPS for Q2, with guidance for Q3 essentially in-line with consensus of 33c on $676.05M in revenue, assuming a Q3 seasonal quarter-over-quarter downtick. While still a few quarters out, Piper believes investors will start getting positioned for CS5 now, given the historical CS cycle peak multiple occurs 1-6 months prior to ship. Piper expects CS5 will ship in April 10.

Thomas Weisel says that while Adobe did indicate in its last report that it was seeing signs of stabilization in the February-March timeframe in its channel, the firm is modeling an 11% sequential decline in Q2 revenue to $701M and a flattish Q3 . Although European-end markets, which is 35% of total revenue, are likely to remain weak for a few more months, Weisel believes that Adobe has been able to put some pricing increases through in some regions, such as the U.K. The firm also expects the Education market, one of Adobe’s largest verticals, to help bridge the gap in Q3 as it shifts to CS4 for the Fall semester. Overall, Weisel suspects visibility is starting to improve somewhat for Adobe as the U.S. shows signs of stabilization and management continues to focus on expense controls.