Microsoft 4Q Profit Up 82%

Widely anticipated report shows an earnings jump on strong sales and tax benefit, but profits miss analysts' expectations.
Microsoft reported profits rose 82% in its fiscal fourth quarter and the company raised its revenue forecast for the current year on Thursday. But the results fell short of analysts' expectations, and Microsoft shares fell in after-hours trading.

The world's largest software company reported net income of $2.69 billion, or 25 cents per share, for its fourth quarter ended June 30, compared with earnings of $1.48 billion, or 14 cents per share, during the fourth quarter of 2003. Revenue increased 15% to $9.29 billion, versus $8.07 billion a year ago, helped by higher license sales of Windows and Office as customers upgraded their PCs, and stronger sales to businesses of more expensive "enterprise" editions of the company's products. Earnings were helped slightly by a tax benefit. "All of our businesses met or exceeded our expectations," chief financial officer John Connors said in a statement.

But analysts surveyed by Thomson First Call expected the company to earn 29 cents per share during the quarter, and Microsoft shares (Nasdaq—MSFT) fell by 5% in after-hours trading before recovering some of those losses later.

Microsoft's earnings report came after Tuesday's blockbuster announcement that it plans to distribute as much as $75 billion in cash to its shareholders over the next four years. The company, which has more than $60 billion in cash on its balance sheet, this week said it will pay a special one-time dividend of $3 per share in December, buy back $30 billion of its own stock during the next four years, and double its annual dividend. The company had been under pressure from investors to return some of its cash hoard to shareholders amid slowing growth in its stock price, but Microsoft said it held out until it could quell some of the legal risk from antitrust cases in the U.S. and Europe.

Because of the special dividend, which will cost Microsoft $32 billion, the company reduced its earnings outlook for fiscal 2005 to $1.05 to $1.08 per share, compared with a previous estimate of $1.16 to $1.18 per share. But Microsoft increased its revenue projection for 2005 to $38.4 billion to $38.8 billion, compared with prior estimates of $37.8 billion to $38.2 billion. Connors said better results in the company's unearned revenue account of sales booked but not yet immediately recognized, and stronger sales of its Xbox video-game system, would help results. During a conference call with analysts Thursday, he also predicted slower growth in revenue from the SQL Server database product and from the company's developer tools, as customers are expected to wait for new releases of those products late in the fiscal year.

For all of fiscal 2004, Microsoft reported earnings of $8.17 billion, or 75 cents per share, on revenue of $36.84 billion. In the prior year, earnings were $7.53 billion, or 69 cents per share, on revenue of $32.19 billion.

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