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Soft guidance from software giant Adobe overshadowed a strong second-quarter fiscal report.
The time of dreams
Adobe
Shares lost ground late in Thursday’s trading after the creativity, marketing and document software provider provided softer-than-expected guidance for the August quarter and the full year ending in November. Adobe is feeling the effects of both the intensifying headwinds of negative exchange rates and the fallout from the war in Ukraine.
Adobe stock (ticker: ADBE) is down 4.4%, at $349 at the end of the session. In Thursday’s regular session, shares fell 3.1%.
For the fiscal second quarter ended June 3, Adobe (ticker: ADBE) posted revenue of $4.39 billion, up 14%, or 15% after adjusting for currency exchange rates, and slightly ahead of its guidance goal of $4.34 billion. Adjusted earnings were $3.35 per share, a nickel above the company’s forecast. Under generally accepted accounting principles, the company earned $2.49 per share. Adobe said it repurchased 1.9 million shares during the quarter.
CEO Shantanu Narayen said in a statement that the company has seen “strong demand” across its business. Revenue from the digital media segment was $3.2 billion, up 15%. Creative software revenue reached $2.61 billion, up 12%, while DocumentCloud revenue reached $595 million, up 27%.
While reported results were good, forecasts disappointed, albeit largely due to non-operational factors. For the August quarter, Adobe forecasts revenue of $4.43 billion, with non-GAAP earnings of $3.33 per share; Street consensus was for revenue of $4.51 billion and non-GAAP earnings of $3.40 per share. On a GAAP basis, Adobe sees earnings of $2.35 per share.
For the full year, Adobe now reports revenue of $17.65 billion, down from a previous forecast of $17.90 billion, with non-GAAP earnings of $13.50 a year. share, against 13.70 dollars previously.
The company said its outlook was dampened by several factors, including higher effective tax rates linked to lower-than-expected tax benefits linked to stock-based compensation, the impact of the war in Ukraine, including including Adobe’s decision to stop all new sales in Russia. and Belarus, and an expected $175 million slowdown in negative exchange rates spread over the last two quarters of the fiscal year.
In an interview, Adobe Chief Financial Officer Dan Durn noted that the company’s overall outlook had been reduced by approximately $75 million to reflect the company’s exit from Russia and Belarus, and ‘approximately $12 million to reflect a decision to automatically renew customers in Ukraine at no cost. He said the stock-based compensation tax issue is expected to affect earnings by about 25 cents per share.
Durn noted that all of these factors together should in theory have reduced the earnings outlook by 60 to 70 cents per share, but he notes that the company actually only reduced its guidance by 20 cents as the company gained in operational efficiency. And he pointed out that all of these one-off factors aside, there has been no change in the company’s fundamental outlook.
Write to Eric J. Savitz at [email protected]
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