Adobe Stock Is Falling After Hours. Earnings Guidance Was Disappointing.

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Software giant Adobe’s light guidance overshadowed a strong fiscal-second-quarter report.


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Adobe

stock is losing ground in late trading Thursday after the provider of software for creativity, marketing, and documents provided softer-than-expected guidance for both the August quarter and the full fiscal year ending in November. Adobe is feeling the effects of both intensifying headwinds from negative foreign-exchange rates and the fallout from the war in Ukraine.

Adobe (ticker: ADBE) stock is down 4.4%, to $349 in late trading. In the regular session Thursday, shares fell 3.1%.

For the fiscal second quarter ended June 3, Adobe (ticker: ADBE) posted revenue of $4.39 billion, up 14%, or up 15% when adjusted for currency rates, and slightly ahead of its guidance target of $4.34 billion. Adjusted profits were $3.35 a share, a nickel above the company’s forecast. Under generally accepted accounting principles, the company earned $2.49 a share. Adobe said it repurchased 1.9 million shares in the quarter.

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CEO Shantanu Narayen said in a statement that the company saw “strong demand” across its business. Digital Media segment revenue was $3.2 billion, up 15%. Creative software revenue was $2.61 billion, up 12%, while DocumentCloud revenue was $595 million, up 27%.

While the reported results were fine, guidance disappointed, although largely due to nonoperating factors. For the August quarter, Adobe sees revenue of $4.43 billion, with non-GAAP profits of $3.33 a share; Street consensus had been for revenue of $4.51 billion and non-GAAP profits of $3.40 a share. On a GAAP basis, Adobe sees profits of $2.35 a share. 

For the full year, Adobe now sees revenue of $17.65 billion, down from a previous forecast of $17.90 billion, with non-GAAP profits of $13.50 a share, down from $13.70 previously.

The company said its outlook was muted by multiple factors, including higher effective tax rates tied to lower-than-expected tax benefits related to stock-based compensation, the impact of the war in Ukraine, including Adobe’s decision to stop all new sales in Russia and Belarus, and an anticipated $175 million drag from negative exchange rates spread across the last two quarters of the fiscal year.

In an interview, Adobe chief financial officer Dan Durn noted that the company’s full outlook was reduced by about $75 million to reflect the company’s exit from Russia and Belarus, and about $12 million to reflect a decision to automatically renew customers in Ukraine without charge. He said the tax issue tied to stock-based compensation is expected to hit earnings by about 25 cents a share.

Durn noted that all of those factors together in theory should have reduced the earnings outlook by 60 to 70 cents a share, but he notes that the company only actually reduced guidance by 20 cents, as the company gained operation efficiencies. And he emphasized that all of those one-time factors aside, there has been no change in the company’s fundamental outlook.

Write to Eric J. Savitz at eric.savitz@barrons.com