HP’s Earnings Up 27% in Its Fourth Quarter

Computer maker Hewlett-Packard Co. rebounded from an unexpectedly weak summer and said Tuesday that fiscal fourth-quarter profit rose 27% on record revenue in all its businesses, including its Enterprise unit that sells server computers.

HP’s share price rose 8.5% in after-hours trading following the earnings release.

“This is another indication that enterprise spending is continuing to ramp, defying much concern,” said Mark Stahlman, an analyst with the investment bank Caris & Co., referring to tech spending by large companies. “All the indications we’re getting for the December quarter are that it’s shaping up well too. So enterprise is back and strong.”

Palo Alto-based Hewlett-Packard earned $1.09 billion, or 37 cents a share, in the quarter ended Oct. 31, compared with $862 million, or 28 cents, a year earlier. Revenue rose 7.7% to $21.4 billion.

“After a challenging third quarter, I’m pleased with the steady improvement we made in the fourth quarter and the way we ended the fiscal year,” Chief Executive Carly Fiorina said in a conference call with analysts. “We were solidly profitable in all our businesses except software ... which neared breakeven.”

For the full year, HP’s profit rose to $3.5 billion, or $1.15 a share, from $2.5 billion, or 83 cents, in 2003, as revenue rose 9.4% to $79.9 billion.

Chief Financial Officer Robert Wayman told analysts that HP was accelerating its cost reductions in the first half of the 2005 fiscal year.

Wayman said that he expected six-month revenue of $41.8 billion to $42.3 billion and earnings for the half of 72 cents to 74 cents a share, in line with Wall Street’s expectations.

HP shares rose 26 cents to $19.68 in regular trading on the New York Stock Exchange before the results were announced, and gained an additional $1.67 to $21.35 in after-hours trading.

The results were a contrast to HP’s disappointing third quarter, when price cuts and shipping delays led Fiorina to scold the Enterprise Servers and Storage unit for “unacceptable execution” and fire three senior executives.

In the fourth quarter, a resurgence in corporate spending offset a cooling off from consumers compared with a year earlier, Fiorina said. The enterprise unit had revenue of $4.1 billion, up 8%, and an operating profit of $107 million.

However, the unit could still do better, said Chuck Jones, who helps manage $16 billion in assets at Stein Roe Investment Counsel, which owns Hewlett-Packard shares

“Servers and storage had good revenue, but the margins weren’t spectacular,” Jones said. “There’s nothing going on there that tells me things are materially changing.”

Fitch Ratings analyst Nick Nilarp said that HP needed to prove that the fourth-quarter performance was not a fluke.

“Like the last quarter when we saw negative things and we said, ‘That’s not a trend,’ one quarter of positive news doesn’t make a trend either,” Nilarp said. “We need to see consistent operating profitability for all of HP’s segments.”

The Imaging and Printing Group -- HP’s traditional profit center -- and the Personal Systems Group that sells PCs each had revenue of $6.5 billion for the quarter. But printers earned an operating profit of $1.1 billion, for an operating margin of 17%, while PCs brought in operating earnings of $78 million, or a margin of 1.2%.

“Our strategy in the PC business is not to go for bragging rights for No. 1 revenue or unit sales but to have steady competitive growth and profitability,” Fiorina said.