When most people think of Adobe (NASDAQ:ADBE), they think of the ubiquitous Acrobat portable document files (PDFs) that are slowly taking the place of paper documents in our workday lives. But Adobe is actually much more than just Acrobat; the company operates in five different business segments. On Thursday, after close of market, we'll hear about all of them when the company reports its fiscal Q3 2006 earnings numbers.

What analysts say:

  • Buy, sell, or waffle? Two dozen analysts follow Adobe. Twice as many say buy as say hold. Solve.
  • Revenues. On average, they're looking for 22% sales growth tomorrow, to $594.6 million.
  • Earnings. But a 10% decline in profits to $0.26 per share.

What management says:
Early last month, Adobe issued its "regular intra-quarter business update" and -- happy day -- it didn't contain an "earnings warning." One month from the end of the quarter, it confirmed that it is on track to meet its June guidance of $580 to $610 million in revenue, a 16% to 19% operating margin, and $0.13 to $0.16 in profits per share. If you wonder why that profits number is so much less than Wall Street's finest are looking for, Adobe answered that question, too: It promised pro forma profits of $0.25 to $0.27 per share.

Get all the news on Adobe's last quarter in Jeremy MacNealy's "Folly Volley: Adobe Systems."

What management does:
Adobe had a weaker sales quarter than expected back in June, which helped (in a bad way) to drag its rolling margins down for the second quarter running. That said, the firm's consistent production of more than 90% gross margins, more than 30% operating margins, and a net profit margin hovering in the mid- to upper 20s remains enviable.

Margins %

3/05

6/05

9/05

12/05

3/05

6/06

Gross

93.8

94

94.1

94.3

92.4

91.4

Op.

34.9

35.5

36.2

37

33

33.4

Net

27.9

28.8

29.7

30.7

25.9

23.1
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Fellow Fool Bobby Shethia argues forcefully that Adobe will overcome its short-term troubles. Although the firm faces an array of powerful competitors (see below), none of them is quite as focused on the firm's core businesses of portable document files, photo editing, and video animation.

I actually agree with that, but it's worth noting that Adobe's detractors (none of whom, it appears, are analysts) do have reason for their pessimism. When you look at sales performance over the last two quarters, and combine it with what the company predicted would be announced in Thursday's news, the year-over-year sales growth looks like this: 39% in Q1, 28% in Q2, and now perhaps 22% in Q3. My hunch is that Adobe will eventually find the gas pedal and reaccelerate its growth, but the trend right now is downward. What would be really nice on Thursday would be to see the company post faster sales growth than we're currently expecting.

Competitors:

  • Apple (NASDAQ:AAPL)
  • Eastman Kodak (NYSE:EK)
  • Hewlett-Packard (NYSE:HPQ)
  • Google (NASDAQ:GOOG)
  • IBM (NASDAQ:IBM)
  • Microsoft (NASDAQ:MSFT)

For more on Adobe, read:

Microsoft is a Motley Fool Inside Value selection.

Fool contributor Rich Smith does not own shares of any company named above.