Why Adobe Systems and La-Z-Boy Will Be Big Movers Tomorrow

Stocks edged higher today as stronger-than-expected inflation numbers lifted financial and cyclical stocks. The Dow Jones Industrial Average  (DJINDICES: ^DJI  ) finished the day up 27 points, or 0.2%, while the S&P 500 gained by 0.2% and the Nasdaq increased 0.4%. 

The Consumer Price Index, the mostly widely watched inflation indicator, rose 0.4% in May, the most in more than a year, and higher than expectations of 0.2%. The gain follows an increase of 0.3% in April. Rising inflation is a sign of increasing demand and, generally, of a strengthening economy. The increase in prices, however, could provoke action by the Fed in the form of higher interest rates. Year-over-year inflation was up 2.1%, above the Fed's target of 2%. Still, the rising prices also indicate that consumers are able to spend more as the labor market improves.

The Fed began its two-day Open Market Committee Meeting, during which the central bank is widely expected to continue to taper its bond-buying program by $10 billion. Elsewhere in the day's economic news, housing starts and building permits for May both came in lower than expected at a seasonally adjusted annual rate of 1.001 million and 991,000, respectively. Still, it was just the fourth month in the past year that housing starts have been 1 million or more, though the news indicates that the housing recover may be hitting a plateau. 

After hours today, shares of Adobe Systems  (NASDAQ: ADBE  ) were flying higher, up 9.4%, after delivering a strong earnings report. The software maker said its subscription-based business grew, with Creative Cloud subscriptions jumping about 20% sequentially, as adjusted earnings per share improved to $0.37, better than estimates at $0.30. Revenue in the quarter improved 6%, to $1.07 billion, topping expectations of $1.03 billion. Management credited the growth to its financial leverage, strong performance in its subscription services, and noted a promising "upcoming product pipeline."

Looking ahead, the company expects earnings of $0.22-$0.28 and revenue of $975 million to $1.03 billion against analyst estimates of $0.27 and $1.02 billion, respectively. The tech company has, at times, struggled with the shift to mobile, but the growth of its subscription services seem to indicate it has a reliable future revenue stream.

Moving in the other direction after hours was La-Z-Boy  (NYSE: LZB  ) , which fell 11% after delivering a disappointing earnings report of its own. The furniture maker actually beat earnings estimates by $0.01, with a per-share profit of $0.33, but sales were badly off the mark, growing just 2.1% to $353 million against the consensus at $367.9 million. Management blamed the weather for the poor revenue growth. Same-store sales also declined for the first time in 14 quarters, falling 0.9%, lapping an increase of 11.2% from the year before. Comps did improve as the weather got better. Considering that the weather appeared to play a large role in the slow-sales growth, I'd ignore today's drop.

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