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Microsoft, Amazon Go up Against the Wall St.
washingtonpost.com Staff Writer Friday, July 23, 2004; 10:00 AM
Microsoft reported an 81 percent rise in profit and a 15 percent surge in revenue, but its financial outlook included in its fourth-quarter results didn't win much Street credit. The company's profit also is expected to dip with its plan to dole out a large chunk of its cash holdings. Microsoft shares were down slightly at the start of the trading day, mirroring a fall in after-hours trading.
So why aren't investors doing cartwheels? The Associated Press explained that "the company still just missed analysts' expectations. The software company also slightly raised its revenue expectations for its coming fiscal year, which ends in June 2005, but decreased its earnings per share projections to account for a planned one-time dividend. Analysts said that may cause short-term stress but should not affect the company's core business in the long term." Meanwhile, the Los Angeles Times reported this: "Although it raised sales projections for the year ahead by $600 million to $38.6 billion, Microsoft lowered its profit forecast to a range of $1.05 to $1.08 a share. In April, it had projected $1.16 to $1.18." Corporate controller Scott Di Valerio told the Times that "the growth rate is down a little bit, primarily due to the fact that we have lower investment income."
Microsoft is still smarting from news it announced earlier this week to award $3 a share in a $32 billion one-time dividend and to buy back $30 billion in stock. The company "announced its results after the stock market closed. In after-hours activity, the stock fell about 60 cents to $28.26. The fall was cushioned by the announcement earlier this week about the $3-a-share dividend," The Washington Post reported. The Post cited remarks Microsoft's Connors made during a conference call. "Connors said earnings in fiscal 2005 would be lower than previously projected due to the $3-a-share dividend, which will cost the company more than $32 billion," the paper said. "Microsoft has about $60 billion in cash and has resolved many legal issues that it had faced, making it possible for the company to satisfy investors' clamoring for it to do something with the enormous cash pile. Still, while Microsoft continues to dominate numerous computer segments, including the operating systems that run personal computers, sales growth has slowed as the company has become larger."
The Financial Times said "disappointment about the effect on its future profits from paying out $32bn via a special one-off dividend – which will rob the software giant of interest income – sent its shares down by 5 per cent in after-hours trading. Microsoft also said the yield on its remaining investments would fall next year after it shifted its cash into shorter-dated securities. The company's changing approach to how it manages its investment hoard also held down what would otherwise have been a banner quarter for operating earnings in the three months to the end of June." The Journal gave more details about how Microsoft missed Wall Street's expectations, despite an otherwise stellar quarter. "Microsoft said full-year sales are expected to range between $38.4 billion and $38.8 billion. By comparison, an average of analysts' estimates by Thomson First Call forecast sales of $38.64 billion – in the middle of Microsoft's range. Microsoft's fourth-quarter results included an unexpected loss of $406 million, a $350 million increase from the previous year, on investments used to hedge foreign-currency and interest-rate risks. The company said it had begun shifting some of its portfolio into lower-yield investments that can be quickly turned into cash, as part of its preparation for the dividend payout," the newspaper reported.
The company, however, reported gains in a number of its business lines. "Microsoft said each of its seven divisions met or surpassed the company's expectations for the fourth quarter, although three of them remain unprofitable: Microsoft Business Solutions, Home and Entertainment, and Mobile and Embedded Devices. The previously unprofitable MSN Internet division, continuing to benefit from strong advertising revenue, posted operating income of $35 million for the quarter. The division also posted annual operating income of $121 million – its first yearly profit. The Information Worker division, which includes Microsoft Office and related products, posted a 23 percent revenue increase for the quarter," the Seattle Post-Intelligencer reported.
In The Jungle
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