Adobe Meets Estimates But Still Disappoints Overly Expectant Investors

Jun.15.07 | About: Adobe Systems (ADBE)

Adobe Systems Incorporated (NASDAQ:ADBE) reported financial results for its second quarter of fiscal 2007 ended June 1, 2007. Revenue of $745.6 million was better than the guidance of $700 to $740 million and consensus of $729 million. Non-GAAP diluted earnings per share for the second quarter of fiscal 2007 were $0.37, compared to the company’s target range of $0.34 to $0.36 and the $0.35 consensus.

For the third quarter of fiscal 2007, Adobe announced it is targeting revenue of $760 million to $800 million, right in line with the $781 million consensus. They also forecast a GAAP earnings per share target range of approximately $0.28 to $0.31 and a non-GAAP earnings per share of approximately $0.39 to $0.41, compared to a $0.40 consensus target.

So why did the shares fall after the report? As I suspected, the expectations got ahead of reality. Regardless of what the published estimates said, investors were expecting them to beat them. Such a situation frequently leads to (possibly unwarranted) disappointment when the numbers are released.

As I said in the preview article, I’d rather buy the shares below $40. The shares traded lower on a positive market day and were weaker after hours on an apparently strong number, so there is definitely some weakness there. Not enough weakness, however, for me to jump in.

At least not yet.

ADBE 1-yr chart:

ADBE 1-yr chart