HP Trims Annual Revenue Estimates
Hewlett-Packard Co. executives Tuesday trimmed sales estimates for the next year and a half in their first gathering for financial analysts since HP acquired Compaq Computer Corp. after a hotly contested shareholder vote.
Chief Financial Officer Robert Wayman guided analyst expectations for the second half of this year to $35 billion to $36billion--the same as a year before and down from just more than $37billion.
“We thought we might see a muted recovery in ’02. I don’t think we’ll see that,” Chief Executive Carly Fiorina told the all-day gathering in Boston.
For the next fiscal year, HP now expects sales to increase by 7% to 9%, to as much as $86 billion, instead of 8% to 10%, Wayman said. The company didn’t give earnings projections.
But the executives said savings from the Compaq purchase should be better than they had predicted because of additional contract renegotiations, real estate consolidation and other factors. Although HP had forecast savings of as much as $2.5 billion a year, it said Tuesday that it should carve away $3billion in costs in fiscal 2004.
HP shares rose 12 cents to $18.97 on the New York Stock Exchange, up nearly 9% since the merger’s completion a month ago.
Fiorina also gave more detail on the timing of job reductions, predicting that 10,000 jobs will be eliminated by Nov. 1, when the fiscal year ends. An additional 5,000 positions will be dropped in fiscal 2003, one year ahead of schedule.
The executives said corporate information technology spending is still retrenching, and that businesses are more concerned about integrating the products they have than in buying new gear.
Critics of the Compaq deal claimed that Fiorina had been underestimating the amount of revenue that will be lost when overlapping product lines are eliminated. But Fiorina said she was sticking by her earlier estimates.
“We remain comfortable with the revenue loss due to the merger we laid out,” Fiorina said.
Before the merger, HP had an incentive to give optimistic forecasts in order to win over shareholders. Now that the merger is over, Fiorina acknowledged she will probably give low targets in hopes of impressing Wall Street when they are exceeded.
“Now is not the time to set that bar too high,” she said. “Now is the time to set the bar that we can meet or beat.”
Marty Shagrin, an analyst at Victory Capital, which owns about 6 million HP shares, said HP’s outlook was positive, since the company’s restructuring proved a source of strength.
“In the face of a very difficult environment, it is nice to have [an investment] thesis built on not having the economy get better,” he said. “The next year is going to be driven by their ability to take costs from the business, and they seem to have a handle on that.”
Lehman Bros. analyst Dan Niles said HP’s assessment of still-slow tech spending cast a shadow on the industry. “For many, it is going to be a disappointment,” he said.
But he added that HP was dealing with it well. “They are executing better than they expected and we expected,” he said.
Niles said he expected Wall Street to lower its earnings estimates for the company based on the new HP revenue guidance. Currently, analysts expect the company to post earnings of 88 cents a share for fiscal 2002 and $1.29 for fiscal 2003.
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Bloomberg News and Reuters were used in compiling this report.
