Microsoft Foresees Less Profit in Wake of Payout
After pledging this week to give more than half its cash hoard to shareholders, Microsoft Corp. on Thursday confirmed an expected side effect: With less to invest, profit will suffer.
Microsoft reported strong fiscal fourth-quarter profit and sales that beat projections, but the world’s largest software maker lowered earnings estimates for the coming year, in large part because it predicted a drop in investment income.
For the three months ended June 30, net income soared 82% to $2.7 billion, or 25 cents a share, from $1.5 billion, or 14 cents, a year earlier. Revenue increased 15% to $9.3 billion, driven by gains in sales of Office software, versions of the Windows operating system for corporate networks and software for controlling e-mail and databases.
For the fiscal year, Microsoft reported earnings of $8.2 billion, or 75 cents a share, up from $7.5 billion, or 69 cents, in the previous year. Revenue was $36.8 billion, up from $32.2 billion in 2003.
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.
“The growth rate is down a little bit, primarily due to the fact that we have lower investment income,” Corporate Controller Scott Di Valerio said. In the quarter just ended, about 21% of Microsoft’s profit came from investment earnings.
Microsoft shares dropped 65 cents to $28.35 in after-hours trading following the report, after closing up 14 cents at $29 on Nasdaq.
The results came two days after Microsoft announced plans to give $32 billion to shareholders in a special one-time dividend of $3 a share and double its regular dividend payout to 32 cents a share. That will cut into Microsoft’s cash and short-term investments, which peaked at $56 billion three months ago and now stand at $49 billion.
The quarter marked the end of Microsoft’s 20th consecutive profitable year, but the company’s projected revenue growth rate of 4% to 5% is the lowest in its history as a public company. Analysts blame delays in the next version of Microsoft’s flagship version of Windows for personal computers.
Even though revenue growth is slowing, Microsoft Chief Financial Officer John Connors said he expected strong corporate demand for technology to continue for the next six months before stabilizing.
“Corporate profits are up dramatically,” Connors said, and are pulling up technology budgets. “We are positioned for strong growth in the mid-to-long term if we continue to execute well.”
Some analysts were impressed with the prospects despite the decrease in investment income.
“There is still growth potential there, driven by both consumers and business,” said Wells Fargo Securities analyst Eric Upin. “One of the big stories is their move from the consumer to the [corporate] data center. I think Microsoft will cast a bigger shadow in the applications space as well.”
