Hewlett-Packard Company Earnings Beat Estimates; Sales Weak

Hewlett Packard1588877 / Pixabay

Hewlett Packard unveiled quarterly earnings that beat analysts’ expectations, while its revenues came in short of consensus.

The computer giant indicated that a rising U.S. dollar will hurt results, as it derived 65% of its sales outside of the U.S. in fiscal 2014.

Hewlett-Packard’s revenue drops

The Palo Alto, California-based company posted first-quarter earnings of 92 cents per share, up 2% from a year ago. Its sales dropped 4.7% to $26.8 billion from $28.2 billion, under an average analyst estimate of $27.3 billion, according to data compiled by Bloomberg.

HP anticipates second-quarter earnings to fall in the range of 84 cents to 88 cents per share, well below Wall Street’s forecasts for 96 cents a share, according to a consensus estimate from Thomson Reuters.

Highlighting the impact of the rising U.S. dollar, HP CEO Meg Whitman said: “While we were able to manage the impact of currency in the quarter and deliver earnings as expected, we believe the impact on FY15 will be significantly greater than we anticipated in November. We’ll work hard to offset these impacts through re-pricing and productivity, but fully mitigating currency movements of this size would require reducing investments and mortgaging our future. We won’t do that”.

In the first quarter, HP’s revenue in enterprise services, software and financial services dropped, while sales at its personal-computer unit and the enterprise group were little changed from a year ago. Sales from its higher-margin printing division dropped 5% to $5.54 billion.

Hewlett-Packard’s split cost pegged at $2 billion

As reported by ValueWalk, last October, Hewlett-Packard Company unveiled plans to split into two separate publicly traded Fortune 500 companies by the end of 2015. The split would involve one company controlling HP’s market-leading enterprise technology infrastructure, software and services businesses, and the other company consisting of HP’s market-leading personal systems and printing businesses.

HP indicated that will incur about $2 billion in costs over two years related to the split.

During her conference call with analysts, HP’s Chief Financial Officer Cathie Lesjak said the $2 billion in costs for the split reflects a forecast of $1.3 billion of charges for fiscal 2015, an estimated charge of $500 million for 2016, and separation-related capital spending of $300 million this year. The firm also anticipates foreign tax expenses of $950 million relating to the split, though half of that may be offset by tax credits.

Despite the computer giant’s $11.1 billion disastrous acquisition of British software firm Autonomy forced it to write off $9 billion, its CEO Meg Whitman expressed confidence that the company is “now in a position where we can actually make acquisitions, which we couldn’t when we started”.

Reacting to the earnings announcement, HP shares dropped 6% in after-hours trading.

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About the Author

Mani is a Senior Financial Consultant. He has worked in Senior Management role in large banking, financial and information technology organizations. He has provided solutions for major banking and securities firms across the globe in the area of retail, corporate and investment banking. He holds MBA (Finance) and Professional Management Accounting Qualifications. His hobbies are tracking global financial developments and watching sports

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