HP Profit Climbs 51% Amid Overhaul
Hewlett-Packard Co.’s turnaround picked up steam Tuesday as the maker of personal computers and printers reported a sharp profit increase -- and forecast another -- that exceeded Wall Street’s expectations.
The results highlighted the vastly different direction the company is taking compared with Dell Inc. as HP Chief Executive Mark Hurd revamps the Silicon Valley icon heading into his second year on the job.
Dell, once the PC industry’s gold standard, has been hurt by price drops and miscalculating demand for cheaper PCs. The Round Rock, Texas-based company has said it will miss its forecasts when it announces first-quarter results Thursday, the third quarter in a row it will have fallen short.
By contrast, Palo Alto-based HP reported a 51% surge in fiscal second-quarter profit to $1.46 billion, or 51 cents a share, and an operating profit of 54 cents a share, beating the 49-cent consensus estimate of analysts surveyed by Thomson Financial. HP said it expected operating profit to be as high as 48 cents in the current quarter, topping analysts’ forecast of 43 cents.
HP shares jumped as high as 3.8% in after-hour trading after slipping 52 cents to $31.11 in regular trading Tuesday before the earnings announcement.
Hurd was hired a year ago to replace Carly Fiorina, who engineered HP’s controversial, $18.9-billion acquisition of Compaq Computer Corp. But she failed to deliver consistent profitability as a result.
Hurd said he planned to continue focusing on cutting costs, improving efficiency and raising revenue and profit margins.
“We’re just trying to run a good company,” Hurd said in a conference call with reporters. “We’re a technology company and we’re trying to build great technology and get it to the market appropriately and service it appropriately.”
He said he did not want his success to be measured by performance in the PC market alone.
“It’s not our sole object to gain share,” he said. “There are some different attributes among our competitors. Our breadth from the channel aspect is a tremendous asset to us and gets us into a lot of consumer markets. But our goal is to run a better business.”
In addition to squeezing costs, Hurd plans to hire hundreds of salespeople in the next several quarters to cultivate corporate, government and education customers.
“He just needs to continue executing on the restructuring plan that he announced last July,” said Michael Cohen of Pacific American Securities. “And I don’t think he’s going to stop cutting costs when he’s done with the July plan. I think you’ll see a revised plan.”
HP’s second-quarter earnings compared with $966 million, or 33 cents a share, a year earlier. Excluding one-time charges, HP earned $1.6 billion, or 54 cents a share, in the quarter ended April 30, compared with $1.1 billion, or 37 cents, a year earlier. Revenue was $22.55 billion, just shy of analysts’ consensus of $22.61 billion.
For the current quarter, operating profit is expected to be as high as 48 cents a share, surpassing analysts’ expectation of 43 cents. Revenue is expected to be $21.75 billion for the quarter and $91 billion for the fiscal year, in line with analysts’ consensus.
“What’s going right is we have a company that’s executing extremely well in realigning its cost structure,” Cohen said. “This can clearly be seen as revenues are not increasing much.”
Hurd’s second year will involve less obvious solutions, said Mark Lanyon, an analyst with Morningstar Inc. “For the next year, it needs to be transitioning from a restructuring story to an overall growth and productivity story,” Lanyon said. “He needs to get the share price up and increase HP’s market value. That’s more difficult than fixing what was a poorly run business.”
