HP Results Show Signs of Revival; Shares Rise
Hurd mentality is setting in at Hewlett-Packard Co.
The computer and printer maker said Thursday that Chief Executive Mark Hurd’s broad restructuring helped boost fiscal fourth-quarter sales and operating income, but implementation costs pushed net income down 62%.
HP’s profit fell to $416 million, or 14 cents a share, from $1.09 billion, or 37 cents, in the same period last year. Revenue rose 7% to $22.9 billion. Excluding one-time charges to cut staff, HP earned 51 cents a share, which beat by 5 cents the expectations by analysts surveyed by Thomson Financial.
HP shares, which rose 73 cents to $29 in regular trading, gained an additional $1.74 in after-hours trading.
The results appeared to bolster the aggressive efforts by Hurd, who was hired in March to turn around the ailing Silicon Valley icon. He has cut 15,000 jobs -- about 10% of Palo Alto-based HP’s global workforce -- and brought in new executives to compete more nimbly against industry leader Dell Inc.
“You don’t normally expect a new CEO to have such an immediate positive effect on the financials,” said Martin Reynolds, an analyst with technology market researcher Gartner Inc. “The business units are executing well. Two good quarters don’t point to the sky, but it’s consistent.”
And they parallel two quarters in which Dell has stumbled. Round Rock, Texas-based Dell fell short of revenue and profit forecasts, in part because it overestimated demand for higher-end PCs.
By contrast, HP’s PC division led growth in margins. Revenue in the unit grew 9% to $7.1 billion, but operating profit more than doubled to $200 million.
HP’s long-profitable printing unit saw operating income fall 18.5% to $896 million, even though unit shipments increased and sales rose 3.7% to $6.8 billion. That is largely because HP is expanding its product lines with more expensive color laser printers and needs to build a base of users before it can reap profits from toner and other supplies.
“Overall it was a very nice quarter,” said Chuck Jones, a technology analyst with Stein Roe Investment Counsel, which manages $15 billion in assets and owns HP shares. “The biggest hurdle is how do you get overall revenue growth. It’s going to be tough to get an $87-billion business into more than mid-single digits on a consistent basis.”
On a conference call with journalists, Hurd described his first six months on the job as busy and difficult.
“We are pleased with our progress to date,” he said, “but there is more work ahead of us.”
For the full year, HP earned $2.4 billion, or 82 cents a share, compared with $3.5 billion, or $1.15 a share, in fiscal 2004. Revenue rose 8.5% to $86.7 billion. Analysts had expected $86.6 billion. Operating profit for the year was $4.7 billion, or $1.62 a share, ahead of the analysts’ consensus of $1.56 a share.
For the first quarter of fiscal 2006, Chief Financial Officer Robert Wayman told analysts that he expected per-share operating earnings to be 46 to 48 cents, ahead of analysts’ expectations of 44 cents. For the full year, he said, operating income will be $1.88 to $1.95 a share, outpacing the analysts’ consensus of $1.82.
