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(Bloomberg) — Meg Whitman, who took over as Hewlett-Packard Co.’s chief executive officer two months ago, used her first earnings conference call to tell investors they need to lower their expectations.
Hewlett-Packard’s first-quarter profit forecast and full-year earnings outlook both missed analysts’ estimates—a sign the company is still reeling from a technology-spending slump that led to the ouster of Whitman’s predecessor, Leo Apotheker.
The new CEO’s prescription for fixing Hewlett-Packard’s ailing businesses, such as personal computers and information-technology services, includes boosting research spending and limiting the size of acquisitions. The idea is to conserve cash and spur homegrown innovation, something the company neglected over the past decade. She said she’ll unveil more plans in the first half of next year.
“This is much bigger than just the quarter,” said Brian White, an analyst at Ticonderoga Securities LLC in New York, who has a “neutral” rating on Hewlett-Packard shares. “You’ve got a company that underwent years of underinvestment. They’ve got markets like PCs that are running into headwinds. And you’re seeing increased competition in the IT market.”
Hewlett-Packard slipped 2.3 percent in late trading yesterday after the report. The stock, which closed at $26.86 earlier in the day, had already tumbled 36 percent this year.
Slow growth in Europe and the Americas will weigh on results next year, even as Asia looks more promising, Whitman said yesterday in an interview.
“We’re relatively pessimistic about the economic outlook in two of our three major regions,” Whitman said. “2012 just looks tough to me.”
Profit for the quarter ending in January will be 83¢ to 86¢ a share, excluding some items, the company said in a statement yesterday. The average estimate of analysts surveyed by Bloomberg was for $1.11 a share.
Excluding certain items, profit will be at least $4 a share in fiscal 2012, which began Nov. 1, Hewlett-Packard said. That missed the average forecast for profit of $4.58.
In the fourth quarter, which ended Oct. 31, Hewlett-Packard suffered declines in its printing, PC and server divisions, hurt by consumers and businesses curtailing spending. Apotheker was replaced on Sept. 22 after slashing forecasts three times in less than a year and jarring investors with a proposal to spin off the PC unit. The profit outlook for this quarter and fiscal 2012 show that Whitman has a more realistic sense of the company’s challenges, said Chris Whitmore, an analyst at Deutsche Bank AG in San Francisco.
“Estimates now are at a level where they can hit rather than missing, which they developed a track record of doing,” said Whitmore, who has a “sell” rating on Hewlett-Packard.
Whitman told Wall Street analysts she plans to eschew large acquisitions next year, rebuild the company’s balance sheet and reduce the amount of “drama” at the company after Apotheker’s ouster.
“HP is getting back to business fundamentals in 2012,” she said during a conference call with analysts. “No more surprises.”
Fiscal 2011 profit was dragged down by after-tax one-time costs of $3.3 billion, or $1.56 a share. An August decision to stop making devices sporting WebOS, gained in last year’s $1.2 billion acquisition of Palm Inc., accounted for $1.64 billion of the expenses.
The company was losing money on each TouchPad tablet it sold, prompting the move. Hewlett-Packard will make a decision about what to do with the WebOS software by early December, Whitman said in the interview. She will present her overall strategy to investors some time in the first half of 2012.
Fourth-quarter profit was $1.17, excluding some items. That exceeded the $1.13 estimate. Sales of $32.1 billion matched analysts’ projections. Results were buoyed by a 9 percent sales increase in the so-called BRIC countries—Brazil, Russia, India and China—that partly made up for declines in the U.S. and Europe.
