HP plans services and restructuring charges
Meg Whitman, looking to get struggling Hewlett-Packard Co. back on track, continued to chip away at the technology giant’s problems with a new round of financial moves designed to clean up its balance sheet.
In a company update Wednesday, HP said it would take an $8-billion accounting charge in its fiscal third quarter related to its 2008 purchase of Electronic Data Systems. HP bought the technology outsourcing firm for $13.2 billion, a price that analysts and investors said at the time was too high.
The Palo Alto company said the write-down stemmed from the recent trading values of HP’s stock, “coupled with market conditions and business trends” within the company’s services segment. It said it did not expect the charge to result in any future cash expenditures or otherwise affect the ongoing business or financial performance of the division.
But JPMorgan analyst Mark Moskowitz said the impairment charge “underscores the distressed nature of HP’s portfolio.”
“We remain cautious on HP’s long-term growth prospects,” he said in a note to investors.
HP also announced that it expected to record a restructuring charge for the third quarter of $1.5 billion to $1.7 billion related to a round of layoffs it announced in May. That was higher than the $1-billion charge announced previously; HP said the increase was in part because more employees than expected had elected to participate in the company’s early retirement program.
HP said that given the services and restructuring charges, it now expected a third-quarter earnings per share loss of $4.31 to $4.49. Adjusted for the one-time charges, HP said earnings per share were likely to be $1, up from a previous range of 94 cents to 97 cents.
HP shares rose 45 cents, or 2.4%, to $19.41 on Wednesday. Still, the company’s stock is down 25% year to date.
HP announced a few management changes as well.
John Visentin, who ran HP’s Enterprise Services, will leave the company and will be succeeded on an acting basis by Mike Nefkens, currently senior vice president and general manager of Enterprise Services for Europe, the Middle East and Africa. Jean-Jacques Charhon, senior vice president and chief financial officer of Enterprise Services, was appointed the division’s chief operating officer.
Ben A. Reitzes, an IT hardware analyst with Barclays, said that despite a few positives, the update “left many questions on the table,” including revenue performance, fourth-quarter guidance and free cash flow trends. He said in a note to investors that he expected HP to report third-quarter revenue well below consensus estimates of $30.3 billion when the company releases its earnings Aug. 22.
The company didn’t provide a full-year outlook.
