Adobe Beats Expectations by 4 Cents

Adobe also announced that its president will retire in March.
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Adobe Systems

(ADBE) - Get Report

, the No. 1 maker of graphics publishing software, said Thursday that strong demand for its products contributed to a big rise in fourth-quarter earnings, which exceeded Wall Street's expectations by 4 cents.

Based in San Jose, Calif., Adobe also announced that its president and co-founder, Charles Geschke, would retire in March. Chief Executive John Warnock will replace him as president.

Adobe shares, which closed in positive territory at 63 3/4 on Thursday, continued to climb in after-hours trading. They were trading up 4 3/8, or 7%, at 68 1/2, according to

Instinet

.

Adobe reported net income of $97.4 million, or 76 cents a diluted share, in the fourth quarter, compared with $50.3 million, or 39 cents a diluted share, a year ago. Excluding restructuring charges, investment gains and losses and other unusual costs, Adobe said it earned 46 cents in the fourth quarter.

The company had been expected to earn 42 cents a share, according to the consensus estimate of analysts polled by

First Call/Thomson Financial

.

Revenue rose to $281.8 million, up 14% from $246.7 million a year ago.

"Adobe's growth comes from the increased demand for our products for Web content creation and delivery," Warnock said in a statement. "Our results in fiscal 1999 were outstanding, and we are committed to our goals of 20% annual revenue growth and 30% operating profit in 2000."

Analysts said the strong revenue growth was also contributing to their enthusiasm about Adobe.

"I think the thing to focus on is the revenue growth -- the Internet and the use of Adobe software to create content drove revenue growth," said Greg Vogel, an analyst with

Banc of America Securities

.

Vogel, who had expected fourth-quarter revenue of $268 million, said he was very bullish on the company's long-term outlook."This one (quarter) is even better than the good quarters they've had in the past," he said. Banc of America rates Adobe a buy and does not do any underwriting for the company.

The earnings come on the heels of a strong third quarter, in which Adobe beat analysts' estimates.

Jennifer Smith, an analyst at

Dain Rauscher Wessels

, said, however, that after great success in trimming costs and boosting operating margins, she was concerned about Adobe's ability to drive up profit through further cost cutting.

"My sense is there is not as much upside in earnings unless some of their Web initiatives take off," said Smith, who had a buy-aggressive rating on Adobe prior to the earnings announcement. Her firm does not do any underwriting for the company.

Smith said that one initiative to watch would be

GoLive

, a tool that allows people to design their own Web sites.