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HP Forecasts Profit, Revenue That Top Estimates

Cathie Lesjak, interim CEO of Hewlett-Packard Co.
Cathie Lesjak, interim chief executive officer of Hewlett-Packard Co. Source: Bite Communications via Bloomberg

Hewlett-Packard Co., the world’s largest computer maker, forecast earnings and sales for fiscal 2011 that exceeded analysts’ estimates and said it’s considering good internal and external chief executive officer candidates.

The company expects earnings excluding costs of $5.05 to $5.15 a share on sales of $131.5 billion to $133.5 billion, interim Chief Executive Officer Cathie Lesjak said yesterday. Analysts had predicted sales of earnings of $5.01 and revenue of $131.7 billion, according to a Bloomberg survey.

Lesjak, who’s making acquisitions and hiring sales staff, said she expects the company to “grow profitably” as its board searches for a successor to Mark Hurd. HP plans to return some cash to shareholders through dividends and stock repurchases, she said. That would help buoy a stock that has slumped 10 percent since Aug. 6, when Hurd departed after allegations of sexual harassment.

“The stock is so cheap right now that a higher dividend would create a better yield for investors, and potentially a reason to buy the stock,” said Brian Marshall, a Gleacher & Co. analyst in San Francisco, who recommends buying HP shares.

HP currently pays an 8-cent quarterly dividend, for a 12-month yield of 0.8 percent. The company plans to hire “several thousand” salespeople in the coming quarters, though it remains focused on curtailing costs, Lesjak said.

She gave analysts no indication how soon the board would choose a CEO and said there’s room for Hurd’s successor to “put their stamp” on the company.

Capex, Dealmaking

Spending on capital expenditures and acquisitions will be the “No. 1 priority” for HP’s cash, Lesjak said. Buying back shares will be of secondary importance, she said.

HP, based in Palo Alto, California, rose 94 cents, or 2.3 percent, to $42.56 in New York Stock Exchange composite trading at 10:03 a.m. It had slid 19 percent this year before today.

The company also announced plans to sell a device called the “Palmpad,” using technology from its Palm Inc. acquisition earlier this year. HP has hired 200 people for the Palm business since the takeover was completed in July, said Todd Bradley, who oversees the division.

HP expects to hold 17 percent of the market for tablet computers by 2013, Bradley said. HP this month began shipping a $399 printer that includes a built-in tablet running Google Inc.’s Android software.

Margin Outlook

HP expects to have a fiscal 2011 operating margin, excluding costs, of 11.6 percent to 11.8 percent, Lesjak said. HP’s operating margin, the percentage of sales left after production, sales and marketing costs, was 9.9 percent in the most recent quarter. Analysts surveyed by Bloomberg have predicted an 11.6 percent operating margin in fiscal 2011.

Operating profit and per-share earnings are likely to rise more quickly than revenue, Lesjak said. The company also plans to boost research and development spending faster than sales in fiscal 2011, she said.

International Business Machines Corp. CEO Sam Palmisano publicly criticized HP this month for using acquisitions, rather than spending on research, to pursue innovation.

HP’s research and development spending has declined by 18 percent over the past five years, even as sales increased 45 percent, said Sanford C. Bernstein & Co. analyst Toni Sacconaghi in a note to clients this month.

The spending level may be appropriate, said Sacconaghi, who has an “outperform” rating on HP shares. That’s because almost 95 percent of the company’s sales growth over that time has come from businesses that require low R&D spending, such as personal computers, Intel-based servers and technology services, he said.

In August, HP hired Spencer Stuart Inc. to help it find a new CEO. While the company hadn’t ruled out picking an outside executive, the board was leaning toward an internal candidate, a person familiar with the matter said earlier this month.

The short list included Bradley, head of the PC division; Dave Donatelli, who runs the storage and server unit; and Ann Livermore, executive vice president of the enterprise business, said the person.

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