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Over the weekend we made our forecast for the Adobe Systems (NASDAQ:ADBE) earnings results, saying “We think they are likely to beat but that investors will still be too worried about the product cycle for the stock to benefit.” Yesterday the company reported first quarter results:

In the first quarter of fiscal 2007, Adobe achieved revenue of $649.4 million, compared to $655.5 million reported for the first quarter of fiscal 2006 and $682.2 million reported in the fourth quarter of fiscal 2006. Adobe’s first quarter revenue target range was $640 to $670 million. Adobe’s GAAP diluted earnings per share for the first quarter of fiscal 2007 were $0.24, based on 604.2 million weighted average shares. This compares with GAAP diluted earnings per share of $0.17 reported in the first quarter of fiscal 2006, based on 621.8 million weighted average shares, and GAAP diluted earnings per share of $0.30 reported in the fourth quarter of fiscal 2006, based on 602.2 million weighted average shares.

Non-GAAP diluted earnings per share for the first quarter of fiscal 2007 were $0.30. This compares with non-GAAP diluted earnings per share of $0.32 reported in the first quarter of fiscal 2006, and non-GAAP diluted earnings per share of $0.33 reported in the fourth quarter of fiscal 2006. Adobe’s first quarter non-GAAP earnings per share target range was $0.28 to $0.30.

The consensus estimates were for $655 million in revenue and $0.29 in earnings per share, which means that for the quarter Adobe missed on the top line but more than made it up by controlling expenses. Importantly, its major product upgrade is ahead of it, and that can often result in lower sales as customers wait for the new version. Adobe management alluded to this in the earnings release:

“Q1 was a solid quarter for Adobe, as we came in at the high end of our earnings target range and were within our targeted range for revenue,” said Bruce Chizen, chief executive officer of Adobe. “As Adobe prepares for the biggest product launch in our history, we are excited about our opportunities and bullish about our prospects for another year of strong performance.”

According to a Forbes article, that product launch is targeted for May, which puts it at the end of the current quarter. It shows in the revenue guidance:

For the second quarter of fiscal 2007, Adobe announced it is targeting revenue of $700 million to $740 million. The Company also is targeting a GAAP operating margin of approximately 23 to 25 percent in the second quarter. On a non-GAAP basis, the Company is targeting a second quarter operating margin of approximately 36 to 37 percent.

In addition, Adobe is targeting its share count to be between 605 million and 607 million shares in the second quarter of fiscal 2007. The Company also is targeting other income in its second quarter to be approximately $23 million to $24 million, with a GAAP tax rate of approximately 24 to 26 percent and a non-GAAP tax rate of approximately 25 to 27 percent.

These targets lead to a second quarter GAAP earnings per share target range of approximately $0.23 to $0.26. On a non-GAAP basis, the Company is targeting earnings per share of approximately $0.34 to $0.36.

Analysts were expecting $717 million in sales and $0.35 non-GAAP EPS. Better still, the company expects further gains in the third quarter, according to a Reuters article:

“We also expect Q3, which is normally a tough quarter for Adobe due to seasonality and the way our quarter breaks out, to be sequentially up,” said Chizen in a telephone interview with Reuters.

With all of the good news, the stock is trading up considerably in pre-market action, making our weekend punditry look a little too conservative.

Disclosure: author has traded ADBE in the last year.

ADBE 1-yr chart:

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Click here for Adobe's latest conference call transcript