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 user 2009-05-19 at 12:36:38 pm Views: 70
  • #22117
    Latest Economic Signal: H-P Toner Error
    The worst might be over for personal-computer sales. But for technology bellwether Hewlett-Packard, the printing division could still look ugly when the Palo Alto, Calif., company reports fiscal second-quarter earnings Tuesday afternoon. Such a trend could continue to pinch H-P for a few more quarters.Analysts anticipate a profit of 86 cents a share, about a penny lighter than a year earlier. With its global span and products that touch consumers and businesses alike, H-P’s results and management’s comments about them will be a meaningful read on the broader economy.Though there are signs the PC market has stabilized, worries persist that H-P’s printing business, which generates roughly a third of the company’s profit, continues to struggle. That is an indication that even as the economy is trying to pull itself up, consumers and corporate purchasing managers continue to keep their pocketbooks mostly closed.H-P typically sells its printers at a loss, making up the difference with high-profit-margin ink that consumers must continually buy. For that reason, Wall Street has looked at ink as a buffer that provides a stable income stream for H-P in lean times. Printing-segment revenue had risen at high single-digit rates for years.Alas, no more.

    Amid massive U.S. job losses, business bankruptcies and other misery, H-P’s so-called consumable sales plunged 7.2% in the fiscal first quarter, one reason H-P missed Wall Street’s revenue estimates by $3 billion, or 10%.Going into Tuesday’s second-quarter report, U.S. unemployment keeps rising, while businesses keep cutting costs. The upshot: Businesses will likely print less and consumers “won’t be printing an album of photos with expensive color ink at home,” says Bill Shope, a Credit Suisse Group analyst. “If the printing business continues to deteriorate, it will be difficult for H-P to hit their targets this year.”

    Brian Alexander, an analyst at Raymond James & Associates, estimates sales declines in H-P’s consumable business “will accelerate this quarter — it could be down in the low- to midteens — and will probably stay negative the rest of the year.”There is a “very tight correlation,” he says, between consumables and macroeconomic indicators such as employment and information-technology spending. “If more people are employed and there’s economic growth, there are more supplies bought.”And vice versa.


    H-P Expected To Weather Storm Despite Sales Drop
    “Our improved expectations follow recent industry data points that suggest demand has tracked greater than we previously expected in H-P’s printer supplies and outsourcing services businesses,” Reid wrote. “With strength in these areas, offset by weakness in servers and storage, we expect a favorable operating margin mix shift to result in an Apr quarter EPS beat.”PC sales are still expected to be a weak point for the company. This has typically been H-P’s largest business, accounting for more than one-third of the company’s total revenue base in its most recent fiscal year.

    Moskowitz of J.P. Morgan expects sales in the personal systems group, which includes PCs and laptops, to fall more than 23% in the second quarter from the same period last year.”We expect H-P to benefit from the better than expected PC market trends and the mix shift to the consumer,” he wrote. “The benefit stands to be modest though, as better than expected units stand to be offset by lower ASPs [average selling prices.]“Revenue from H-P’s enterprise systems and software businesses is also expected to drop sharply.”We do not expect H-P’s enterprise hardware business to be an outlier when it comes to server and storage trends,” Moskowitz wrote.
    Amit Daryanani of RBC Capital Markets said he expects H-P’s recent cost-reduction efforts to show “EPS resiliency.” He said investors are likely to focus on the results from the printing side as well as the company’s guidance.”While we don’t believe we are out of the woods yet from a macro perspective, we think conditions are incrementally more positive,” he wrote in a note Monday.