Bloomberg News

Hewlett-Packard Sales Top Estimates on Corporate Demand (2)

November 26, 2013

Hewlett-Packard Retail Outlet

Pedestrians walk past a store selling Hewlett-Packard Co. products in Nehru Place IT Market, a hub for the sale of electronic goods and computer accessories, in New Delhi. Photographer: Graham Crouch/Bloomberg

Hewlett-Packard Co. (HPQ:US) reported fiscal fourth-quarter revenue and profit that topped analysts’ estimates, boosted by corporate demand for servers, personal computers and networking equipment.

The shares jumped in extended trading after the company said in a statement today that revenue for the period ended Oct. 31 was $29.1 billion. That exceeded the $27.8 billion average estimate of analysts, according to data compiled by Bloomberg. Profit excluding some items was $1.01 a share, compared with the $1 average estimate.

Chief Executive Officer Meg Whitman, in her third year at the helm, is cutting costs (HPQ:US) and rebuilding relationships with customers and resellers to move past a period when the company churned through three CEOs and lost share in many of its key markets. Business demand for PCs has helped offset a global slump, while Whitman renewed product development in areas including printers and computer servers.

“The enterprise PC market seems to be stabilizing and Meg’s made progress,” Jayson Noland, an analyst at Robert W. Baird & Co. who has the equivalent of a hold rating on the stock, said in an interview. “She’s picked morale up from a low point under Leo,” he said, referring to former CEO Leo Apotheker, who was ousted in 2011 in favor of Whitman.

The shares (HPQ:US) of the Palo Alto, California-based company rose as much as 8.3 percent in extended trading to $27.17 after closing down less than 1 percent at $25.09 in New York.

Whitman’s Forecast

Net income (HPQ:US) was $1.41 billion, or 73 cents a share, compared with a $6.85 billion loss, or $3.49 a share, in the fourth quarter of last year. Revenue in the same period a year earlier was $29.96 billion. Cash flow from operations increased 10 percent.

A year ago at this time, the company disclosed an investigation into accounting fraud at its Autonomy software unit, which it had bought for $10.3 billion. Hewlett-Packard took an $8.8 billion writedown on the acquisition.

Profit excluding some items will be 82 cents to 86 cents a share for the current period, compared with the average 85-cent estimate, according to data compiled by Bloomberg.

Whitman made her forecast even as the coming year has been a moving target. The CEO had initially said revenue would rise in fiscal 2014 as PC sales stabilized, then scrapped that prediction in August amid a prolonged PC slump and weak demand for data-center equipment and services. At an Oct. 9 meeting with analysts in San Jose, California, she said the year-over-year sales decline would moderate after this year.

Business Units

In the fourth quarter, revenue in the company’s enterprise group -- which includes servers, storage and networking gear -- rose 1.8 percent from a year earlier. There were a few other pockets of growth, including commercial PCs, where revenue increased 4 percent. Sales declined in most other businesses, such as consumer PCs, printers, software and enterprise services.

Corporations are spending more on technology, with companies upgrading to PCs that have Microsoft Corp. (MSFT:US)’s newer Windows operating systems and away from Windows XP, said Noland.

On a conference call with analysts, Whitman said the company faces some challenges next year, citing “macroeconomic headwinds almost across the board” and aggressive pricing by Dell Inc. and others.

Profitable Growth?

Chief Financial Officer Cathie Lesjak said the selling environment “remains choppy and somewhat challenging” and added that she is looking for more places to cut costs.

Analysts said that while Hewlett-Packard topped analysts’ estimates, revenue fell and profit margins remain thin.

“We didn’t see upside on EPS,” said Brian Marshall, an analyst at ISI Group, who has the equivalent of a hold rating. “They just have to discount more and more to be competitive.”

Hewlett-Packard’s earnings report follows tepid results from enterprise computing suppliers including Cisco Systems Inc. (CSCO:US) and International Business Machines Corp. Cisco on Nov. 13 forecast its first quarterly sales decline in four years as the networking equipment maker cited slower spending by phone companies and large corporations.

IBM on Oct. 29 said it added $15 billion to its stock buyback plan after a sixth straight quarter of declining sales.

Whitman has rewarded shareholders who held on (HPQ:US) the past few years. The company said at the Oct. 9 analyst meeting that at least 50 percent of its free cash flow (HPQ:US) will be returned to shareholders via dividends and buybacks in 2014.

Separately, Hewlett-Packard and Whitman lost a bid today to dismiss a shareholder securities class-action lawsuit alleging investors were misled about the Autonomy acquisition, according to a filing in federal court in San Francisco.

Whitman’s Portfolio

Whitman is trying to make the most of a technology behemoth that sells everything from PCs and home printers to the servers, networking gear and software that power corporate data centers. Hewlett-Packard is behind in mobile computing, where tastes are shifting from notebooks to tablet computers and smartphones, and is competing with healthier rivals including Apple Inc. and Samsung Electronics Co.

In the corporate computing market, Hewlett-Packard is squaring off against Cisco, EMC Corp., Oracle Corp., IBM and Dell Inc., which last month went private in a $24.9 billion leveraged buyout by its founder. A host of enterprise computing startups are also winning a bigger chunk of companies’ spending.

At the Oct. 9 meeting, Hewlett-Packard told analysts profit for fiscal 2014 would be $3.55 to $3.75 a share and that sales are stabilizing. Analysts on average expect sales of $107.4 billion and earnings of $3.64 a share.

To contact the reporter on this story: Aaron Ricadela in San Francisco at aricadela@bloomberg.net

To contact the editor responsible for this story: Pui-Wing Tam at ptam13@bloomberg.net


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Companies Mentioned

  • HPQ
    (Hewlett-Packard Co)
    • $36.79 USD
    • -0.22
    • -0.6%
  • MSFT
    (Microsoft Corp)
    • $47.52 USD
    • 0.84
    • 1.77%
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