HP’s Profit Climbs Sharply
Hewlett-Packard Co. shares hit a five-year high Wednesday after the PC and printer maker posted a quarterly profit that beat Wall Street expectations and validated Chief Executive Mark Hurd’s aggressive turnaround plan.
Hurd, hired to right the company after last year’s ouster of CEO Carly Fiorina, also announced a $6-billion stock buyback, the largest in HP’s history.
“I’m pleased with our performance,” Hurd said in a conference call. “Revenue grew. Margins expanded. We took market share. We generated strong cash flow. And we continue to make progress toward building a strong HP.”
Shares climbed in after-hours trading to $36.50, their highest level since February 2001. The stock rose 44 cents to $34.43 during regular trading before the earnings were released. It has gained nearly 20% this year.
Like other PC makers, HP’s margins have been squeezed recently by falling component prices and intense competition.
Industry leader Dell Inc. has struggled to maintain its spot as HP’s restructuring makes it more efficient. The company is shedding more than 15,000 jobs -- about 10% of its workforce -- and reworking product lines.
Dell reports its earnings today, and most analysts expect the Round Rock, Texas-based company to post a drop in second-quarter profit. Some analysts said that Dell’s model of selling directly to buyers might be hurting sales.
For its fiscal third quarter ended July 31, HP reported net income of $1.38 billion, or 48 cents a share -- up sharply from $73 million, or 3 cents, in the same period a year earlier, when the Palo Alto-based company was on the hook for a big tax bill. Sales rose 5% to $21.9 billion.
Excluding extraordinary items, the company earned $1.5 billion, or 52 cents a share; Wall Street was expecting a profit of 47 cents a share, according to Thomson Financial. Wednesday’s results marked the fifth consecutive quarter that HP beat the street’s estimate. The company did not disclose the details of the stock buyback.
HP and other computer makers with a strong retail presence, including Apple Computer Inc. and Gateway Inc., have benefited as sales of laptops costing less than $1,000 have climbed 48% this year.
“The companies that tend to be doing well are those that are in the retail channel,” said Richard Shim, an analyst at IDC Research Inc. “That’s where consumers play. That’s one of HP’s strengths but not one of Dell’s strengths.”
Martin Reynolds, a vice president of market research firm Gartner Inc., said HP’s PC division was the “success story of the last year.” It has traditionally found itself at a pricing disadvantage to Dell because it shares revenue with its resellers. But as HP controls its costs and develops a direct channel to consumers who prefer to buy online, PCs are contributing more to the company’s bottom line, Reynolds said.
PCs accounted for 31% of HP’s revenue in the quarter.
“They’re finding the right balance between the direct and indirect model,” Reynolds said. “The English-speaking companies tend to be predisposed to the direct model. When you get to Europe, with all those different countries, different languages, different customers, the channel model is more successful, giving HP an advantage over Dell in places where Dell’s model doesn’t work as well.”
HP’s lucrative printer division contributed an operating profit of $884 million, up 14% from a year earlier, driven largely by orders for printing supplies.
Revenue for HP’s enterprise storage and servers rose 3% to $4.1 billion, and services revenue increased 1% to $3.9 billion.
