HP Profit Soars 49% on Cutbacks, Sales Growth
Hewlett-Packard Co., the world’s No. 2 maker of personal computers, reported a 49% jump in its fiscal first-quarter earnings Tuesday despite continuing weakness in information technology spending in the U.S. and Japan.
Revenue growth in the rest of Asia and in Europe, combined with aggressive cost cutting, helped boost HP’s net income for the quarter to $721 million, or 24 cents a share, compared with $484 million, or 25 cents, in the same quarter a year ago.
Overall, revenue in the three months ended Jan. 31 was below expectations, at $17.9 billion, compared with $11.4 billion a year earlier.
Comparisons with last year’s first quarter factor in HP’s merger with Compaq Computer Corp. in May.
HP’s performance was led by strong earnings from printers, the most profitable of its four main business divisions. Printers look to continue as an engine of HP’s growth this year.
“Our analysis suggests that HP may introduce up to 10 additional inkjet printers during the next two quarters,” analyst Richard Gardner of Salomon Smith Barney wrote Tuesday.
That will help Palo Alto-based HP keep its operating margins for imaging and printing above the 13%-to-15% range it has promised Wall Street, said Gardner, who does not own HP shares. Salomon Smith Barney has done investment banking business with HP in the last year.
HP shares rose 43 cents to $18.18 in regular trading on the New York Stock Exchange before the results were announced. They fell to $17.44 in after-hours trading on sales concerns.
“HP is making good headway and continues to execute well,” Chief Executive Carly Fiorina said. “The first quarter was our best overall profit performance since the merger.”
The revenue drop came largely in the U.S. market, where spending remains weak. Sales in other markets, however, improved 3% compared with the first quarter of 2002.
“Today’s world is full of uncertainty, and predictions are difficult,” Fiorina said.
But she told analysts that HP is likely to meet their consensus estimate for an operating profit of 27 cents a share in its fiscal second quarter.
Of HP’s other main divisions, HP Services and the Personal Systems Group turned profits in the quarter. PSG, the unit that includes desktop, notebook and hand-held computers, reversed a long money-losing streak by earning $33 million in the quarter, contrasted with a $68-million loss in the fourth quarter of fiscal 2002.
The Enterprise Services Group, which supplies computer server and storage equipment to corporate clients and which also has long been in the red, reduced its loss to $83 million from $129 million in the fourth quarter. HP has said it plans to bring its PSG and ESG units solidly into the black this year.
The company is comparing its results in those two divisions with the previous quarter instead of the year-earlier quarter to assess the performance of its combined HP-Compaq product line, Fiorina said.
