As the market edges cautiously higher, Intuit (Nasdaq: INTU) has failed to join in the fun. Shares of the maker of tax prep and small-business software fell 3.6% in the wake of its fiscal 2007 earnings report Wednesday. My instinct tells me the news must have been bad indeed, but the more I look at the numbers, the less I'm inclined to trust my intuition on this one:
- Fiscal 2007 revenue climbed 17% in comparison to fiscal 2006, to $2.67 billion.
- Earnings per share rose 7% to $1.24 for the year.
- Free cash flow for the year increased about 9% to $573.6 million (about 30% higher than net income), despite a near-doubling of capital investment.
- Most recently, sales were up 31% in Q4, outpacing analyst estimates by 4%.
- The firm lost only $0.04 per share in the quarter, better than analysts' predicted loss of a nickel.
Changes at the top
The big news, however, and the likely reason that Intuit's shares slipped despite all the good news above, was that CEO Steve Bennett is leaving the company. If that's the reason for all the pessimism over the stock, I suspect it's misplaced.
Why? For one thing, although Bennett is officially "out," this doesn't feel like a situation in which a CEO gets the boot for incompetence (see the numbers above), or one in which he flees a sinking ship (again, see those numbers). Bennett will not actually leave his post until the end of the year and will continue to serve on the board and to "consult" for the firm through July 2008. Simply put, there is no lack of continuity here.
Nor is Bennett's replacement, Brad Smith, any cause for worry. As head of the firm's successful small business division, Smith has continued to keep QuickBooks the de facto standard for small-business software, despite all of Microsoft's (Nasdaq: MSFT) efforts to breach that business. Smith also has a wealth of experience elsewhere, having worked for rival small-business-software maker ADP (NYSE: ADP) and also for mega-brand PepsiCo (NYSE: PEP).
Foolish takeaway
I certainly understand investors' concerns over an executive change of this magnitude, and such an unexpected one at that. Regardless, Intuit did the right thing in breaking the news to us far ahead of time, giving us time to weight Smith and decide whether he's lacking. Personally, I'd suggest using any further weakness in the stock as a buying opportunity. The firm may not be obviously "cheap" at a price-to-free cash flow ratio of 16 and analyst-estimated growth of 15% per year over the next five years. But it's moving in that general direction.
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Fool contributor Rich Smith does not own shares of any company named above. You don't have to intuit The Motley Fool's disclosure policy. You can read it right here.
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