HP shows progress as profit forecast exceeds estimates

TURNAROUND::Hewlett-Packard’s CEO said she felt ‘pretty good’ about the current fiscal year and reaffirmed a prediction that the firm would resume growth next year

Bloomberg

Sat, Feb 23, 2013 - Page 15

Hewlett-Packard Co (HP), the largest personal computer maker, forecast fiscal second-quarter profit that exceeded analysts’ estimates, helped by cost-cutting measures and a smaller-than-projected drop in service sales.

Profit, excluding some items, will be US$0.80 to US$0.82 a share for the current quarter, which ends in April, the Palo Alto, California-based company said in a statement on Thursday.

That beat the US$0.77 average estimate of analysts, according to data compiled by Bloomberg. Shares surged in late trading.

HP is using job cuts to bolster profit as demand for printers and personal computers slumps and companies curtail purchases of higher-margin hardware and software.

Chief executive officer Meg Whitman said she feels “pretty good” about this fiscal year and reaffirmed a prediction that the company will resume growth next year, evidence of progress on a five-year turnaround plan even as competitive pressures linger.

“They seem to be managing the restructuring better than we had expected — it’s still a work in progress,” said Shannon Cross, an analyst at Cross Research, based in Livingston, New Jersey.

Fiscal first-quarter revenue fell 5.6 percent to US$28.4 billion, compared with analysts’ average estimate of US$27.8 billion.

Profit, excluding amortization, restructuring and other charges, was US$0.82 a share, compared with the US$0.71 prediction. Net income fell 16 percent to US$1.23 billion, or US$0.63 a share, from US$1.47 billion, or US$0.73, a year earlier.

“I feel pretty good about the rest of the year,” Whitman said in an interview. “I think we are beyond the announcements about the writedowns and restructuring.”

Sales in HP’s PC unit fell 7.7 percent to US$8.2 billion during the first quarter, and the “deterioration” will only accelerate in the current quarter, Cathie Lesjak, HP’s chief financial officer, said during a conference call with analysts on Thursday.

Revenue from printers and related supplies declined 5.3 percent to US$5.93 billion. Whitman told analysts she was encouraged by efforts to price ink cartridges more cheaply for emerging markets, and by a new product called the Officejet Pro X that delivers laser-printer speed and quality using cheaper liquid ink technology.

In enterprise services, where sales were down 7.1 percent to US$5.92 billion, two large customers HP had expected to leave during the first half of the year delayed that decision.

“While the results were clearly better than expected, underlying fundamentals remain challenging for the company,” Abhey Lamba, an analyst at Mizuho Securities USA Inc, said in a note.

Lamba has an underperform rating on the shares.

“It posted declining year-over-year sales in every category except for desktops and networking,” Lamba said.

Sales of technology outsourcing and consulting services declined less rapidly than the company had forecast, and printers and ink are yielding higher profit margins than in the past, Lesjak said.

A program to cut 29,000 jobs is also bolstering profits, she said.