Adobe beats 4Q estimates, moves Chizen to CEO

Adobe Systems (Nasdaq: ADBE) easily topped consensus analyst forecasts in the fourth quarter and promoted its president to the company's top executive spot.

After market close Thursday, the maker of graphics and publishing software reported a fiscal fourth quarter operating profit of $127.5 million, or 34 cents per share, excluding amortization and special charges. First Call's survey of 13 analysts predicted a profit of 29 cents per share, for the quarter ended Dec. 1.

Also Thursday, Adobe said Bruce Chizen replaced company co-founder John Warnock as CEO. Chizen keeps his current title of president, and Warnock remains co-chairman of Adobe as he becomes chief technology officer. Warnock also continues to oversee Adobe Ventures.

Shares of Adobe rose to 58.125 in afterhours activity on the Island electronic communications network, immediately following the release of quarterly results. Adobe dropped 8.875 to 57.3125 in Thursday's regular trading ahead of the fourth quarter report.

"Based on every measure, Adobe today is in the best position in its history, and much of that success is due to Bruce's leadership," Warnock said. "With this in mind, the time is right for me to turn the CEO position over to him. This is a personal decision I have considered for some time, and a natural transition that I have been discussing with the Adobe board."

Including all items, Adobe earned $79.2 million, or 31 cents per share.

Fourth quarter revenue increased 26 percent year-over-year and 8 percent sequentially to $355.2 million, "This has been a phenomenal year," Warnock said. "Based on every measure, Adobe today is in the best position in its history."

For the full fiscal 2000, Adobe earned $287.8 million, or $1.13 per share, on revenue approaching $1.3 billion.

Analysts were expecting Adobe to top the consensus expectation. However, prior to Adobe's earnings report, Morgan Stanley Dean Witter's Rebecca Runkle lowered Adobe to "neutral" from an "outperform" rating because of macroeconomic worries.

"The slowing economy and spate of pre-releases, on the margin, make us more nervous about recommending such a high-multiple stock," Runkle said in a research note.

Growth in Adobe's graphics business could slow, Runkle wrote, because about a third of Adobe's revenues come from print publishing, which is undergoing a slowdown in ad spending.

But company executives on Thursday said they still expect to hit their original target of at least 25 percent revenue growth in the first quarter and full fiscal 2001. "We continue to see strong growth in the network publishing economy," Chizen said.

Adobe sees an operating profit of 32 percent in 2001, along with $5 million in other income, with total shares outstanding rising by 3 million to 4 million shares per quarter. Adobe generated an operating margin of 35.9 percent in the fourth quarter, compared to 32 percent in the year-ago period.

J.P. Morgan analyst Aditya Narayanan remained upbeat about the stock and reiterated a "buy" rating on it.

"Our thesis on Adobe remains largely unchanged and believe $84 remains fair value for the stock barring any change in guidance," Narayanan wrote in a note released prior to the earnings report.

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