HP BOOSTS EARNINGS BUT LOWERS EXPECTATION
HP BOOSTS EARNINGS BUT LOWERS EXPECTATION
2005-05-24 at 12:57:00 pm #9831
HP Boosts Earnings but Lowers Expectations
(May 05) – Hewlett-Packard Co. reported a slight boost in
quarterly earnings, inching past Wall Street’s expectations, but the company’s
new leader lowered expectations for the current quarter and acknowledged that
“overall performance leaves room for improvement.”
For the three months ended April 30, Palo Alto-based HP
reported a profit of $966 million, or 33 cents per share, up 9 percent from $884
million, or 29 cents per share, in the second fiscal quarter of 2004.
Excluding special items, such as $177 million in buyouts
and other work force reduction expenses, HP would have earned $1.07 billion, or
37 cents per share, up 4 percent from $1.03 billion, or 34 cents per share, in
the same period a year earlier.
Quarterly revenue was $21.6 billion, up 7 percent from
$20.1 billion in the same quarter a year ago. If adjusted for the declining
value of the dollar, HP sales would have grown only 4 percent.
HP’s quarterly results were 1 cent ahead of expectations of
analysts polled by Thomson Financial, who forecast 36 cents per share on sales
of nearly $21.4 billion.
“HP had a solid quarter,” said Mark Hurd, whom the board
named chief executive and president in March. “Nevertheless, our overall
performance leaves room for improvement in many of our businesses. We expect to
provide details as soon as our plans are finalized that will move us toward that
HP shares rose 54 cents, or 2.6 percent, to close at $21.55
before the earnings report was released Tuesday afternoon, just below a 52-week
high of $22.26. The stock added another 3.5 percent, or 75 cents, in extended
HP slashed research and development costs to $890 million
in the second quarter, from $924 million in the same quarter of 2004 — a risky
move for any company in the fiercely competitive technology sector.
HP has been downsizing for more than three years, and it
spearheaded a companywide wage review May 1, its first in two years. About 1,900
employees took advantage of a voluntary severance program in the last
Hurd, who on Tuesday characterized HP’s cost structure as
“off-benchmark,” appears to be escalating a cost-cutting campaign that earned
former Chairman and CEO Carly Fiorina the moniker “Chainsaw Carly” throughout
Silicon Valley. HP, which employs about 150,000 people worldwide, expects to
spend $100 million to reduce its work force in the current quarter.
Work force reduction expenses, among others, prompted
executives to lower fiscal third-quarter revenue to the range of $20.3 billion
to $20.7 billion, with earnings per share of 29 cents to 31 cents. Analysts were
expecting HP sales of about $20.4 billion and per-share earnings of 32
But some analysts said the lowered guidance may be little
more than expectations management. Hurd was known for providing conservative
financial estimates when he was president and chief executive at NCR Corp.,
Dayton, Ohio-based computer services company.
“There is considerable sentiment that HP may attempt to
lower expectations presumably so that they can then be exceeded, which some
believe to have been Hurd’s approach when he was at the helm of NCR,” said
analyst Mark Stahlman of Caris & Co.
Tuesday’s earnings announcement caps several tumultuous
quarters for HP, which in February fired Fiorina for failing to slash costs and
boost sales quickly enough.
Throughout 2004, Fiorina became the target of intensifying
criticism for her ambitious diversification strategy. Through the 2002
acquisition of Compaq Computer Corp., she attempted to change HP from a bloated
company that focused on printers and ink into a Silicon Valley consulting and
Despite her efforts, ink and printers still drive revenue.
The “imaging” division reported fiscal second-quarter sales of $6.4 billion, up
5 percent from the same period of 2004. Shipments of color laser printers grew
By contrast, HP’s software division reported an operating
loss of $6 million on revenue of $277 million. In the year-ago period, the
division lost $52 million.
“We’re not closing enough deals in the field,” Hurd said of
software sales. “We’re aware what needs to be done and we’re intent on applying
the appropriate amount of rigor to do that.”
Many analysts have expressed concern about HP’s prospects,
and they worry that Hurd will spend too long analyzing operations before
implementing strategies that boost profits. In April, the company canceled one
of its two meetings per year with financial analysts, and it still hasn’t
announced a new date.
But Hurd, who spent the past month meeting with thousands
of employees and all of HP’s largest customers, said he wouldn’t rush his
analysis and development of new strategies. He said he needed more time getting
“beneath the operations.”
“It would be premature to discuss operational plans,” Hurd
said. “But what’s clear to me is that hard work lies ahead of us. The reality is
that there’s no quick fix.”