Posted by : Anonymous on Jul 29, 2004 - 11:09 PM Microsoft

Two days after announcing the largest corporate dividend payout ever, Microsoft reported an 82 percent jump in quarterly earnings, but its stock fell in after-hours trading after earnings came in a penny short of expectations and the company gave a somewhat disappointing outlook for the coming year.
But analysts were pleased that Redmond, Wash., software giant did not echo recent earnings disappointments on the scale of other software firms, such as PeopleSoft and Siebel Systems.

"In the context of what we have been seeing, it's pretty darn good," said Drew Brosseau, an SG Cowen analyst who does not own Microsoft stock. "What we are seeing is that the biggest vendors are doing fine. It's the others who seem to have some problems -- which says to me the environment softened up a bit and the big vendors have been able to power through it."

Microsoft also signaled that there will be a hit to profits from its huge payout to shareholders. It guided analysts to lower earnings estimates for the coming year, in part because the payout will use up some of its cash hoard, reducing its investment income.

In its fiscal fourth quarter, which ended June 30, Microsoft's sales jumped a healthy 15 percent, to $9.29 billion from $8.07 billion a year earlier.

Net income was $2.69 billion, or 25 cents a share. That included after-tax charges of 5 cents a share for stock options and other equity-based pay expenses and a 2-cent-a-share tax benefit. In the year-earlier quarter, net income was $1.48 billion, or 14 cents a share, which included a charge of 4 cents a share for stock-based pay expenses and 5 cents a share for settlement of a lawsuit with Time Warner.

Excluding one-time charges and gains, Microsoft earned 28 cents a share, a penny below Wall Street's expectations of 29 cents a share, excluding charges. The company's $9.29 billion in sales exceeded analysts' expectations of $9 billion.

Shares of Microsoft dropped 2 percent, or 65 cents, in after-hours trading, to $28.35, after closing during regular market hours at $29.

Sales were strong across the board, including in its server and tools business, its new Windows Server license units, SQL Server and Microsoft Exchange, Microsoft Office. Sales of its Windows operating system grew 9 percent from the previous quarter.

"They were really clicking on a number of cylinders," said Rick Sherlund, an analyst with Goldman Sachs, which has provided Microsoft with investment banking services.

Microsoft executives were optimistic on their conference call with analysts, although they said that the current fiscal year will bring tough comparisons with fiscal 2004.

"This was a great quarter that closed a terrific year," said John Connors, Microsoft's chief financial officer.

The company said that growth in the PC market is slowing. It expects PC sales revenue for the industry to grow 7 percent to 9 percent in the coming year, down from 13 percent in the past year.

Microsoft lowered its earnings target for fiscal 2005, to $1.05 to $1.08 a share. Previously, it forecast $1.16 to $1.18 a share.

The company expects its revenue for the year to be $38.4 billion to $38.8 billion, up at most 5 percent from fiscal 2004 sales of $36.84 billion.

Microsoft also disclosed that its huge cash stockpile continued growing. At the end of the quarter, it had total cash and short-term investments of $60.1 billion.

After intense pressure from Wall Street to use its cash hoard to reward investors, Microsoft said Tuesday that it will pay shareholders a special, one-time dividend of $3 a share, or about $32 billion, double its regular dividend and buy back up to $30 billion of its stock over the next four years.

In anticipation of that move, Microsoft had already begun liquidating some of its bond investments.