Hewlett-Packard Profit Forecast Tops Estimates
Hewlett-Packard Co. (HPQ), the largest personal-computer maker, forecast fiscal second-quarter profit that exceeded analysts’ estimates, helped by cost-cutting measures and recovering demand for enterprise services.
Profit, excluding some items, will be 80 cents to 82 cents a share for the period, which ends in April, the Palo Alto, California-based company said in a statement today. That beat the 77-cent average estimate of analysts, according to data compiled by Bloomberg. The shares rose in late trading.
While sales of servers, personal computers and printers remain sluggish, the better-than-expected profits suggest Chief Executive Officer Meg Whitman is making progress in a five-year turnaround. After years of strategy shifts and management upheaval, Hewlett-Packard is sharpening its focus on high-margin business products, as PC and printer demand declines.
“They seem to be managing the restructuring better than we had expected -- it’s still a work in progress,” said Shannon Cross, an analyst at Cross Research based in Livingston, New Jersey. “It’s too early to say you’ve turned the corner on the top line.”
Fiscal first-quarter revenue fell 5.6 percent to $28.4 billion, compared with analysts’ estimate of $27.8 billion. Profit, excluding amortization, restructuring and other charges, was 82 cents a share, compared with the 71-cent prediction. Net income fell 16 percent to $1.23 billion, or 63 cents a share, from $1.47 billion, or 73 cents, a year earlier.
Shares rose as much as 8.1 percent in extended trading. Hewlett-Packard had advanced almost 2 percent in the last hour to close at $17.10 in New York. Almost 4.29 million shares were traded in that timeframe, three times the average volume seen during the same period over the past five trading days.
“To me, it looks like someone had to have known something,” Frank Ingarra, head trader at Greenwich, Connecticut-based NorthCoast Asset Management LLC, said in a telephone interview. His firm oversees $1.4 billion. “There’s huge volume. I would be skeptical to think that someone didn’t have any idea.”
The stock has climbed 29 percent since Nov. 19, a day before the company disclosed an $8.8 billion writedown on the value of software company Autonomy Corp., which it agreed to buy for $10.3 billion in 2011.
Sales in Hewlett-Packard’s PC unit fell 7.7 percent to $8.2 billion during the first quarter. Revenue from printers and related supplies declined 5.3 percent to $5.93 billion. In enterprise services, where sales were down 7.1 percent to $5.92 billion, two large customers Hewlett-Packard had expected to leave during the first half of the year delayed that decision.
“The hope is that this is the floor and they’ve gotten a grip on the business,” said Shaw Wu, an analyst at Sterne Agee & Leach Inc. Wu has a neutral rating on the shares. “They’re giving guidance that actually makes sense.”
Sales of the company’s technology outsourcing and consulting services declined less rapidly than the company had forecast, and printers and ink are yielding higher profit margins than in the past, Cathie Lesjak, Hewlett-Packard’s chief financial officer, said in an interview. A program to cut 29,000 jobs is also bolstering profits, she said.
“When revenue declines, it’s hard to say that it isn’t a lot of the efficiency and productivity that’s driving the bottom line,” said Lesjak.
“I don’t like the fact that we saw revenue declines in each of our major segments,” Whitman said during a conference call. “Restoring revenue growth is a priority, and we’re on it.”
In the statement, Whitman said she “felt good” about the rest of the year, and is focusing on delivering on the company’s forecast. Hewlett-Packard maintained its outlook for adjusted profit of $3.40 to $3.60 a share for the fiscal year.
“While there’s still a lot of work to do to generate the kind of growth we want to see, our turnaround is starting to gain traction as a result of the actions we took in 2012 to lay the foundation for HP’s future,” Whitman said.
Hewlett-Packard reported earnings two days after No. 3 PC maker Dell Inc. (DELL) reported fiscal fourth-quarter sales and profit that topped analysts’ estimates, reflecting businesses’ demand for servers and software. Dell, which is trying to transform into a provider of a broad range of technology products, is planning to go private in a $24.4 billion deal.
Both companies are being dogged by a decline in PC demand. Shipments fell 4.9 percent in the fourth quarter, market researcher Gartner Inc. said. The rise of smartphones, tablets and software that runs via a browser are crimping sales.
“If you look at HP and Dell, they’ve both tried to be like IBM for the past five years,” Wu said. “You just don’t need as powerful a computer anymore, that’s the new market reality. It’s very different than a decade ago.”
There have been some bright spots for Hewlett-Packard in the computer market. Its share of fast-growing ultrathin notebooks was 14 percent in the fourth quarter, according to IDC, second only to Apple’s. Whitman has also said the company will eventually re-enter the smartphone market, after discontinuing phones using software from its Palm Inc. acquisition in 2011.
At a meeting with investors in October, Whitman and Lesjak cut Hewlett-Packard’s earnings forecast for this year, blaming management upheaval and slow updates to key products. That sent the shares to a 10-year low at the time.
Hewlett-Packard said Nov. 20 it would write down most of the value of the Autonomy acquisition after discovering the unit had misrepresented its sales, sending shares plunging 12 percent that day.
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