HP’s Earnings Match as Sales Fall Short Ahead of Split

Hewlett-Packard Co. posted fourth- quarter earnings in line with analysts’ estimates while sales fell short, underscoring the challenges for both sides of the computer maker’s business as it prepares to split in two.

The company’s personal-systems group was the only division that grew in the period that ended Oct. 31. In a statement yesterday after the market closed, the Palo Alto, California-based company also gave a first-quarter profit forecast, with a top end that matched predictions,

While the personal-computer division has benefited from improved corporate demand and the success of low-cost laptops, growth is being held back as the enterprise units struggle with a transition to services based in the cloud, where it competes with services by companies including Amazon.com Inc. Still, the company has been able to improve margins, even as it prepares to split, according to Brian Alexander, an analyst at Raymond James & Associates Inc. in St. Petersburg, Florida.

“Investors are pleased with margin improvement, strong cash flow and the upbeat tone from management about being able to keep revenue flat in 2015,” said Alexander, who has the equivalent of a hold rating on Hewlett-Packard stock.

Hewlett-Packard shares rose 4.1 percent to $39.16 at the close in New York, leaving them up 40 percent this year.

Net Income

Fourth-quarter profit excluding some items was $1.06 a share, matching analysts’ estimates. Net income fell to $1.33 billion, or 70 cents a share, from $1.41 billion, or 73 cents, a year earlier, the company said. Sales dropped 2.5 percent to $28.4 billion, short of the average projection for $28.8 billion, according to data compiled by Bloomberg.

In the current period, profit before certain items will be 89 cents to 93 cents a share. Analysts anticipated 93 cents. For fiscal 2015, profit will be $3.83 to $4.03 a share, compared with the average projection of $3.95.

The forecast doesn’t include the costs of splitting the company, which Hewlett-Packard is still trying to calculate, Chief Executive Officer Meg Whitman said on a conference call yesterday. The company will provide an update when it reports earnings for the first quarter.

A year ago, Whitman said on an earnings call that Hewlett-Packard would face a tough year, with “macroeconomic headwinds almost across the board.” She was right -- though the company made headway in PCs, its other divisions have stagnated, all posting lower annual revenue for fiscal 2014.

PCs, Enterprise

Fourth-quarter sales in the PC unit climbed 4 percent from a year earlier, led by corporate demand, while sales in the printing group fell 5 percent, Hewlett-Packard said.

Strength in commercial PCs will slow down, Whitman said yesterday, echoing a forecast by market researcher IDC, which projects PC shipments in mature markets will decline in 2015.

Enterprise services revenue fell 7 percent in the quarter, and enterprise group sales -- made up of products like servers and storage -- dropped 4 percent. The software and financial-services groups each posted a revenue decline of 1 percent.

“While we are seeing clear pockets of growth, other areas still need more work,” Whitman said on the call yesterday.

The company has been pressing forward with its plan to split, moving executives into roles to oversee the breakup. Chris Hsu, senior vice president of operational performance, will lead the separation of HP Enterprise, while Enrique Lores, senior vice president for Business Personal Systems, will help the PC and printer units form their own company. So far the separation process hasn’t been a distraction, Whitman said.

New Leadership

Whitman, who will run Hewlett-Packard’s enterprise company after the split, and Dion Weisler, who will lead the new HP Inc., focused on PCs and printers, have spent the past year seeking to convince investors that each of the company’s businesses is capable of inventing its way back to technology leadership.

The duo have presided over the introduction of a research-and-development plan for a new type of high-margin computer called the Machine; debuted new servers based around low-power chips from U.K. semiconductor designer ARM Holdings Plc; unveiled a new category of 3-D-capable PC named Sprout; created a cloud-computing service named Helion; and took the wraps off new technology to let Hewlett-Packard enter the market for three-dimensional printers.

“The value-add or value proposition you bring to the enterprise has to be significantly better than the savings you get from putting it on Amazon’s cloud,” said Jeffrey Fidacaro, an analyst at Monness Crespi Hardt & Co., who rates the stock a buy. “That’s where the challenge is right now.”

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE