March 23, 2010
Strong Q1: Positive Signs
Across All Key Areas
Conclusion: ADBE posted a strong Q1, while the seq.
improvement in Q1 deferred and raised Q2 rev. outlook
is bullish for both the cyclical recovery story and CS5.
Consistent with our checks, Acrobat, Enterprise &
OMTR were strong, both growing for the first time in a
year--which provides a more diversified growth story for
FY10. Despite $0.02 dilution from the bonds/tax rate,
Q2 EPS guidance is in line--underscoring ADBE's
commitment to margins. The only real questions are a)
how much upside ADBE left on the table and b) what
visibility is like for the material Q2 raise--but net, this is a
stronger than expected Q with positive signs across the
four major businesses as well as margins. Numbers
should move higher and we remain buyers.
Solid Q1 Results: Rev/EPS of $859M/$0.40 topped us
at $818M/$0.37 and cons. at $825M/$0.37. Creative
Suite was a tad light as demand was pushed out ahead
of the CS5 launch ($432M vs. us $434M / cons. $439M),
but solid results for Acrobat ($166M vs. us $153M / cons.
$154M), Enterprise ($80M vs. us $61M / cons. $66M)
and OMTR ($88M vs. us $81M / cons. $82M) lifted total
rev. above expectations. Opex was largely as expected,
lifting op. margins to 34%, vs. us and cons. at 32% and
EPS to $0.40 vs. us and cons. at $0.37.
Q2 Guidance Better Than Expected: Rev. guidance of
$875-925M is ahead of us at $855M and cons. at $864M
and + 28% YoY—putting ADBE in rare growth air--while
margin guidance of 33.5-35.5% is ahead of us/Street at
34%. EPS guidance of $0.39-0.44 was largely in line
with us at $0.42 and the Street at $0.41, due to dilution
from the interest expense associated with the
company's recently-issued debt, a higher tax rate and
slightly higher share count reduced EPS by ~$0.02.
To Watch on the Call: (1) Commentary regarding
outlook for CS5 and potential launch timing; (2) CS5