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Intuit Trims Loss

The QuickBooks maker beats by 2 cents, but current-quarter guidance comes up short.
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Updated from 4:42 p.m. EDT

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posted a stronger-than-expected fourth quarter, growing revenue by 17% and cutting its losses in half.

But the maker of the popular TurboTax and QuickBooks software applications also said after the close on Monday that it will post a wider-than-expected loss in the current quarter. In after-hours trading, shares were off 85 cents, or nearly 2%, to $45.48.

The company suffered a loss of $20 million, or 11 cents a share, compared with last year's fourth-quarter loss of $42.1 million, or 22 cents a share. Revenue totaled $301.8 million.

Excluding items, the company lost $14.7 million, or 8 cents a share. Analysts polled by Thomson First Call were expecting a loss of 6 cents a share on sales of $281.9 million on the same basis.

Intuit usually loses money in the first and last quarters of its fiscal year because sales of tax programs fall off rapidly after April while fixed costs remain relatively constant. Varying sales performance over the course of a year is known as "seasonality."

Intuit's outlook for the first quarter of fiscal 2006 calls for a loss of 30 cents to 35 cents a share, while Wall Street was expecting a loss of 26 cents a share. Revenue for the quarter, the company said, will likely range from $270 million to $285 million; analysts had forecast sales of $277 million.

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Asked to explain the gap between consensus and the company's earnings guidance, CFO Brad Henske said, "The analysts tend to underestimate our seasonality." As the company grows, he said in an interview, seasonality will increase, largely because of increasing investments in new technology and other areas. Less significant, but still worth noting, is the shift to Web-based software, which changes the timing of revenue recognition, he said.

The company credited strong sales of QuickBooks for much of the strong top-line performance in the fourth quarter but acknowledged that it faces a fight when Microsoft next month launches Small Business Accounting, which will compete head to head.

CEO Steve Bennett said his company has been preparing for the incursion by Microsoft for five years and already made significant improvements to QuickBooks. "We're suited up and ready to play," he said during a conference call with analysts after the earnings announcement.

Nevertheless, analysts believe SBA, as the new Microsoft product is called, will pose a significant challenge to Intuit's franchise because:

It will sell for less than $200, while various versions of QuickBooks sell for $200 to $299, and

SBA will have the familiar look and feel of Microsoft's market-leading Office programs and will be able to exchange data easily with them, according to a spokeswoman for the giant software vendor. In fact, Microsoft will be selling a new version of Office that includes SBA, and has struck deals with companies including ADS, the payroll outsourcing company, to give SBA users better deals.

Prudential Securities analyst Bryan Keane estimates that QuickBooks contributes 37% of Intuit's revenue, and that the competition, plus some likely softening in upgrade revenue foretells some difficulties for the company in fiscal 2006, including a loss of market share.

Prudential does not have an investment banking relationship with either Intuit or Microsoft.

Looking at fiscal 2006, the company said it expects to earn a profit of $1.86 to $1.96, down 3% to 8%, on revenue ranging from $2.18 billion to $2.24 billion, a gain of 7% to 10%. The company said the falloff in earnings is attributable to the expensing of employee stock options (about 25 cents a share) and a higher tax rate.

Excluding items, the company forecast an EPS of $2.19 to $2.29.

Wall Street was forecasting a profit before items of $2.30 a share on $2.2 billion in revenue.