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With fiscal second quarter earnings to be reported on June 19, 2012, we see no change in analyst estimates for Adobe Systems Inc. (ADBE - Analyst Report) to date.

Prior-Quarter Synopsis

Adobe’s first quarter earnings of 42 cents missed the Zacks Consensus Estimate of 46 cents due to lower revenue and its significant exposure to the European region.

Adobe’s total revenue was $1.045 billion, down 9.3% sequentially, due to weakness across all segments, and particularly in the CS product line. Products generated 77.4% of revenue that was down 13.7% sequentially, while Subscription revenue comprised 14% of revenue and was up 18.5% sequentially. Services & Support, which was down sequentially, brought in the balance.

Gross margin was 89.6%, up 10 bps from 89.5% in the comparable year-ago quarter. The increase was on account of cost savings and a favorable mix.

Management Guidance

For the second quarter, Adobe expects revenue of around $1.09 billion to $1.14 billion.

The GAAP EPS is expected to be 37 cents to 43 cents, including stock-based compensation of 18–16 cents, restructuring and other charges of 1 cent, intangibles amortization charges of 6 cents and income tax adjustments of 5 cents, excluding all of which, non GAAP EPS is expected to be 57–61 cents.

For the full year, Adobe expects GAAP earnings of $1.63 to $1.73 and non GAAP earnings of $2.38 to $2.48 based on a share count of 502 million to 504 million shares.

(Detailed earnings results can be viewed in the blog titled: Adobe Fails to Match Up

Agreement of Analysts

None of the 11 estimates for the second quarter were revised in the last 30 days. Even for fiscal 2012, there was no revision in the last 30 days.

Most of the analysts believe that with the release of CS6 and the Efficient Frontier acquisition, revenue and earnings per share will likely come in at the high end of the management guidance range ($1.09–$1.14 billion/$0.57–0.61). However, they believe that negative foreign currency movement will act as a headwind.

The release of CS6 on May 7 is expected to have long-term beneficial effects in terms of growth, cash flow and profitability. The analysts believe that CS6 is off to a strong start, driven by an enhanced feature set, pent-up demand, newer cloud features and subscription pricing. The CS6 release includes the introduction of Creative Cloud (CC), which is available to customers purchasing CS6 via Subscription. Additionally, Adobe’s plans to introduce a set of tablet-based apps should serve as an incremental revenue stream according to analysts.

However, the analysts believe that the key to CS6 success will be the ability of Subscription pricing to attract brand new customers. They also do not expect strong operating margin expansion due to the company’s huge growth investments and continued hiring.

Magnitude of Estimate Revisions

In the last 30 days, there was no change in the Zacks Consensus Estimates for the fourth quarter and fiscal year 2012.

Over the 90-day period, the Zacks Consensus Estimate remains unchanged at 48 cents for the second quarter but increased by a penny to $1.99 for fiscal 2012.

Recommendation

We believe Adobe will come out with decent second quarter results owing to increasing revenue visibility, the CS6 release, cost cutting efforts, improved execution and an expanding customer base. We believe the company’s dominance in the Creative category and the integration of Creative products with digital marketing apps will provide a competitive edge.

Additionally, Adobe’s recent acquisition of Efficient Frontier will enhance its Digital Marketing suite by adding optimization capabilities for search and display advertising while accelerating its entry into social advertising.

However, strong competition from Apple Inc. and Microsoft Corp. (MSFT - Analyst Report) remains a matter of concern.

Adobe shares currently have a Zacks #3 Rank, implying a short-term Hold recommendation.

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