What I find most interesting about ADBE‘s guidance (and that of ORCL, RIMM and RHT to be issued later this week) is that their quarter end was almost 2 weeks prior to the earthquake and tsunami in Japan, and the subsequent business disruption is only affecting their guidance. For most U.S. companies who sell into Asia, the disaster came at a crucial deal closing period in the quarter (the last 2 weeks, especially important for software companies)….
From WSJ 3/22/2011:
Adobe Systems Inc.’s fiscal first-quarter earnings grew 84% on especially strong product and services revenue, although the software maker warned of weakness in the current quarter as a result of business uncertainty in Japan.
The company predicted current-quarter earnings of 47 cents to 54 cents a share on revenue of $970 million to $1.02 billion. Analysts polled by Thomson Reuters expected 56 cents and $1.03 billion, respectively.
Chief Financial Officer Mark Garrett said the company reduced its revenue expectation for the second quarter by $50 million–or roughly one-third of the original expectation for Japan–due to an uncertain business environment after the nation was rocked by an earthquake and tsunami.
-So the real difficulty for investors evaluating Q1 results and Q2 guidance (the bulk of which will come in mid to late April) will be to decipher which companies are exercising the Japan Put in a forthright manner?? Which companies will take the hit in Q1 and which will push it to Q2, or even worse, both. Things shaping up to be a slightly murky earnings period, which could lead to increased volatility.
-make no mistake about it, in certain industries such as tech, industrials and some commodity related names there are some serious supply chain disruptions, and I would suspect that for the most part investors will give them a pass near term.
-So my point is, while the street was fully prepared for companies like ADBE to take a hit in Japan, the lack of visibility makes it that much harder to evaluate near term future performance in what I already expected to be a show me period for most companies considering the rally since early September 2010. By the end of the week we will have a much better sense for how investors will treat guidance affected by the Japanese disaster after we have a wider sample of results and guidance to look at.
-ORCL who reports Thurs after the bell will probably be a decent test for guidance as they only receive about 5% of their revenues from Japan (ADBE is ~12.5%). If the company guides in line to expectations then it’s safe to say that their business is doing very well and they were already expecting to guide up.[/private][/private][/private]