Cost cutting boosts Hewlett-Packard profit forecast

Company likely to beat analyst estimates by at least 3 cents per share

By

Published:

 

Local angle

Hewlett-Packard has an estimated 500 employees in Vancouver. Local operations for the company’s global imaging and printing group are based at the Columbia Center, 1115 S.E. 164th Ave., within the Columbia Tech Center.

SAN FRANCISCO -- Hewlett-Packard Co., the largest personal-computer maker, forecast fiscal second-quarter profit that exceeded analysts' estimates, helped by cost-cutting measures and recovering demand for enterprise services.

Profit, excluding some items, will be 80 cents to 82 cents a share for the period, which ends in April, the Palo Alto, Calif.-based company said Thursday. That beat the 77-cent average estimate of analysts.

While sales of servers, computers and printers remain sluggish, the better-than-expected profits suggest Chief Executive Officer Meg Whitman is making progress in a five-year turnaround. After years of strategy shifts and management upheaval, Hewlett-Packard is sharpening its focus on high-margin business products, as PC and printer demand declines, according to Shaw Wu, an analyst at Sterne Agee & Leach Inc.

Shares rose as much as 8.1 percent in extended trading. Hewlett-Packard advanced 2.3 percent to $17.09 at the close in New York. The stock has climbed 29 percent since Nov. 19, a day before the company disclosed an $8.8 billion writedown on the value of software company Autonomy Corp., which it agreed to buy for $10.3 billion in 2011.

Sales of the company's 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, Cathie Lesjak, Hewlett-Packard's chief financial officer, said in an interview. A program to cut 29,000 jobs is also bolstering profits, she said.

"When revenue declines, it's hard to say that it isn't a lot of the efficiency and productivity that's driving the bottom line," said Lesjak. "It does feel like investor confidence has started to return."

Fiscal first-quarter revenue fell 5.6 percent to $28.4 billion, compared with analysts' average estimate of $27.8 billion. Profit, excluding amortization, restructuring and other charges, was 82 cents a share, compared with analysts' 71-cent estimate.

Net income fell 16 percent to $1.23 billion, or 63 cents a share, from $1.47 billion, or 73 cents, a year earlier.

"While there's still a lot of work to do to generate the kind of growth we want to see, our turnaround is starting to gain traction as a result of the actions we took in 2012 to lay the foundation for HP's future," Whitman said in the statement. "Our primary focus is to deliver on the full year outlook, and I feel good about the rest of the year."

Hewlett-Packard reported earnings two days after No. 3 PC maker Dell Inc. reported fiscal fourth-quarter sales and profit that topped analysts' estimates, reflecting businesses' demand for servers and software. Dell, which is trying to transform into a provider of a broad range of technology products, is planning to go private in a $24.4 billion deal.

Both companies are being dogged by a decline in PC demand. Shipments fell 4.9 percent in the fourth quarter, market researcher Gartner Inc. said. The rise of smartphones, tablets and software that runs via a browser are crimping sales.

"If you look at HP and Dell, they've both tried to be like IBM for the past five years," Wu said. "You just don't need as powerful a computer anymore, that's the new market reality. It's very different than a decade ago."

Sales in Hewlett-Packard's PC unit fell 7.7 percent to $8.2 billion during the first quarter. Revenue from printers and related supplies declined 5.3 percent to $5.93 billion. In enterprise services, where sales were down 7.1 percent to $5.92 billion, two large customers Hewlett-Packard had expected to leave during the first half of the year delayed that decision, helping sales, Lesjak said.

There have been some bright spots for Hewlett-Packard in the computer market. Its share of fast-growing ultrathin notebooks was 14 percent in the fourth quarter, according to IDC, second only to Apple's.