Microsoft earnings up 24 percent, but shares fall

Published 9:00 pm Thursday, October 27, 2005

SEATTLE – Microsoft Corp. said Thursday that earnings for its fiscal first quarter rose 24 percent, narrowly beating Wall Street forecasts.

But Microsoft shares fell in after-hours trading after the company said it expected revenue for the second quarter to come in below analysts’ estimates.

For the quarter ended Sept. 30, the Redmond-based software maker earned $3.14 billion, or 29 cents a share, up from $2.53 billion, or 23 cents a share, in the same period of 2004.

The most recent results included a charge of 2 cents a share to account for a legal settlement with RealNetworks Inc. The results for the year-ago period included a one-time charge of $359 million, or 3 cents a share, to account for a legal settlement with Novell Inc.

Without the one-time charge, the company would have earned 31 cents a share, beating Wall Street estimates by 1 cent. Analysts polled by Thomson Financial were expecting earnings of 30 cents a share on revenue of $9.78 billion.

Revenue for the three-month period was $9.74 billion, up from $9.19 billion in the same period last year.

For the current fiscal second quarter ending Dec. 31, Microsoft said it expects to earn 32 cents or 33 cents a share on revenue of $11.9 billion to $12 billion.

The revenue figure is slightly below the current Wall Street consensus estimate of $12.29 billion, which analyst Charles Di Bona with Bernstein &Co. said is likely what sent shares lower in after-hours trading.

Microsoft shares fell 26 cents, or 1 percent, to close at $24.85 in trading Thursday on the Nasdaq Stock Market. The results were released after regular trading. In after-hours trading, shares were down an additional 30 cents.

Chris Liddell, Microsoft’s chief financial officer, told the Associated Press that he thought analysts may have had different expectations for when the company would see revenue gains from its new server software and new video game console.

“They were, I believe, looking for a spike around the SQL server and Xbox, whereas we see more of a ramp-up throughout the course of the year,” Liddell said.

But he noted that the company did not change its overall revenue guidance for the full fiscal year ending June 30 of between $43.7 billion and $44.5 billion.

Earnings guidance for the full fiscal year was only slightly changed from the previous quarter’s guidance for that period. Microsoft said it expects to earn $1.26 to $1.30 a share, including the 2-cent charge related to the RealNetworks settlement. The company had previously said it expected to earn $1.27 to $1.32 a share for the full year without the charge.

“We feel good about the quarter ahead and good about the year ahead,” Liddell said.

Di Bona said the company performed well overall. “It’s not a bad earnings number,” he said.