The world's leading litigation magnet and software company wrapped up fiscal 2004 by delivering $0.25 a share in earnings in its final quarter on a 15% uptick in revenues. Backing out onetime charges and a tax benefit, the bottom line doubled for a $0.28-a-share showing.
How serious the company's pledge is to buy back $30 billion in stock may be put to the test as the stock fell in after-hours trading. Wall Street was hoping for more and wasn't impressed with the company raising its revenue targets for the new fiscal year while lowering its profit projections.
But what was the market expecting? Surely, the same investors who bid up the stock on Wednesday on the news of a $3-a-share onetime dividend had to realize that paying out more than $30 billion in one lump sum -- roughly half of the company's $60.6 billion cash balance -- would take a bite out of the easy investment income the company produced every year. More than a quarter of its pretax profits last year came from interest it was earning on its idle cash. If investors wanted their hands on it so badly, why are they so shocked to see Mr. Softy without makeup?
The fact that the company is looking to earn at least $1.05 a share this year isn't too shabby, depending on the eventual timing of the pudgy distribution. On an ex-dividend basis, it actually gives the stock a lower P/E multiple than the original bottom line forecast. If the market takes the stock much lower, I think Microsoft would be well advised to do away with the $3-per-stub distribution and simply double the size of the stock buyback and repurchase 20% of its outstanding shares.
Income investors may disagree with me on that. They may very well relish the possibility of such cash-rich companies as Intel
But it won't be the first time I'm in the minority. So, even though the market is dusting off the confetti in its hair and walking away empty, I'm looking forward to fiscal 2005 and its propped-up range of $38.4 billion to $38.8 billion in revenues.
Happy New Year, Mr. Softy. Need a ride home?
Do you think Microsoft is doing the right thing with its $3-a-share dividend? What do you think of the company's prospects for fiscal 2005? All this and more -- in the Microsoft discussion board. Only on Fool.com.
Longtime Fool contributor Rick Aristotle Munarriz doesn't mind being the designated driver at New Year's Eve parties. It gives him that much time to break his New Year's resolutions. He does not own shares in any companies mentioned in this story.