Hewlett-Packard’s Revenue Jumps 7%
Hewlett-Packard Co. reported its best-ever quarterly revenue Tuesday, but the company’s new chief executive said the results “leave room for improvement” at the computer and printer maker’s margins.
HP earned $966 million, or 33 cents a share, in its fiscal second quarter ended April 30, compared with a profit of $884 million, or 29 cents, a year earlier. Revenue rose 7% to $21.6 billion.
Although HP’s performance lagged behind strong results released last week by rival Dell Inc., it was robust enough to ease broader worries about the information technology industry sparked by lackluster earnings at IBM Corp.
“It was by and large a quarter with mixed results, but given the concerns in the overall IT sector, it suggests that IT spending is improving, particularly in April,” said Pacific Crest Securities analyst Brent Bracelin.
HP shares rose 54 cents to $21.55 on the New York Stock Exchange. They gained an additional 75 cents in after-hours trading after the earnings announcement.
Tuesday’s earnings report was the first since Palo Alto-based HP ousted Carly Fiorina as chief executive for failing to execute a successful strategy in the face of competition from Dell and others in the low-margin PC business.
Fiorina was replaced by former NCR Corp. CEO Mark Hurd, who volunteered few details Tuesday about his plans for the storied company.
“Over the past month, I’ve spent the majority of my time getting beneath the strategy, operations and financials of the business segments and corporate functions,” Hurd said in a conference call with financial analysts. “I’ve met the management team, conducted face-to-face meetings with thousands of employees and have spent time with many of our largest customers.”
But, he noted, “At this stage, I have more work to do to get further beneath the operations of the company, and it would therefore be premature of me to discuss any changes to operational plans in detail.”
That said, Hurd reiterated that he would focus on controlling costs.
“We’re concerned about getting our operating model lined up and getting rid of complexity,” he said. “We’ve got to be bipolar in looking at growth as well as cutting costs.... In the end, cost and growth are interrelated.”
Hurd cut 1,900 jobs in HP’s printer business in the quarter and said further workforce reduction was possible, but he gave no specifics.
The imaging and printing business, HP’s perennial profit center, earned an operating profit of $814 million on revenue of $6.4 billion, for an operating margin of 12.7%. That was weaker than a year ago, when the division showed an operating profit of $952 million on sales of $6.1 billion, or an operating margin of 15.6%.
HP’s PC business posted an operating profit of $147 million, also on revenue of $6.4 billion, for a return of 2.3%.
In the current quarter, Chief Financial Officer Robert Wayman forecast revenue of $20.3 billion to $20.7 billion, slightly higher than the consensus estimate of analysts surveyed by Thomson First Call of $20.3 billion. Wayman predicted earnings of 29 cents to 31 cents a share, slightly lower than the consensus estimate of 32 cents.
Those who know Hurd said the guidance was not unexpected.
“Hurd had a track record at NCR of setting very low expectations and beating them,” Sanford C. Bernstein analyst Toni Sacconaghi wrote in a research report last week. “In fact, he beat numbers handily in each of his eight quarters as CEO.”
Mark Stahlman, an analyst at brokerage Caris & Co., said that despite a lack of specifics Hurd appeared poised to launch HP in new directions.
“My expectation is that Hurd will emerge as a growth CEO,” Stahlman said. “The fact that we’ve been told to increase our relative expectations in the third quarter and trim earnings expectations sounds like an accelerating growth strategy.”
