Bloomberg News

HP Boosted by Corporate Demand as Revenue Exceeds Estimates (3)

November 27, 2013

Hewlett-Packard Co. (HPQ:US) Chief Executive Officer Meg Whitman got a boost in her turnaround efforts last quarter as businesses snapped up technology products, sending the stock up 9.1 percent.

The Palo Alto, California-based company reported fiscal fourth-quarter revenue and profit yesterday that topped analysts’ estimates. Results were buoyed by corporate demand for servers, personal computers and networking equipment.

Yet Whitman, who was hired in 2011 to revitalize Hewlett-Packard, told analysts on a conference call that she is anticipating “headwinds almost across the board” in the coming year, amid weakness in some international markets. Revenue fell 3 percent from a year earlier and price cutting by rivals prevented revenue from translating into profitable growth, with operating profit margin falling 1.4 percentage points to 9 percent.

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

Hewlett-Packard said in a statement yesterday that revenue for the period ended Oct. 31 was $29.1 billion, topping 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.

Cost Cutting

The shares rose to $27.36 at the close in New York, the highest since February 2012. The stock is up 92 percent for the year.

Whitman has plenty to manage in fiscal 2014. She pointed to “pockets of revenue growth” from business PCs, servers and networking. Still, total PC sales declined, as did printing, consulting services and a highly profitable line of support contracts called technology services.

More cost cutting (HPQ:US) may be ahead. Chief Financial Officer Cathie Lesjak said the selling environment “remains choppy and somewhat challenging” and added that she is looking for more places to trim beyond the roughly 29,000 jobs Hewlett-Packard will have eliminated by the end of the current fiscal year.

That didn’t discourage analysts such as Jayson Noland, an analyst at Robert W. Baird & Co..

“The enterprise PC market seems to be stabilizing and Meg’s made progress,” Noland, who has the equivalent of a hold rating on the stock, said in an interview.

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 quarter, 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 areas 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.

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.

Happy Investor

“We’ve made our money and that’s great,” said Chris Bertelsen, chief investment officer at Global Financial Private Capital in Sarasota, Florida, who bought Hewlett-Packard at less than $13 and sold at $26.

The investment firm, which manages about $2.7 billion, is looking to rebuild its position and Bertelsen said he hopes Whitman doesn’t make sizable acquisitions that may keep the stock in check.

“In that case I would be really uninterested,” he said.

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


Silicon Valley State of Mind
LIMITED-TIME OFFER SUBSCRIBE NOW

(enter your email)
(enter up to 5 email addresses, separated by commas)

Max 250 characters

Companies Mentioned

  • HPQ
    (Hewlett-Packard Co)
    • $35.48 USD
    • 0.14
    • 0.39%
  • CSCO
    (Cisco Systems Inc)
    • $24.64 USD
    • 0.01
    • 0.04%
Market data is delayed at least 15 minutes.
 
blog comments powered by Disqus