Hewlett-Packard Company Earnings On Tap Tomorrow

Hewlett-Packard is scheduled to release its next earnings report on Thursday after closing bell. The company has been going through a transition as the PC market continues to weaken, but analysts are no longer focused on the PC market.

What to expect in Hewlett-Packard’s earnings report

In a report dated May 19, Stifel analyst Aaron Rakers and his team said they have cut their estimates for HP’s second fiscal quarter due to changes in their PC estimates. They now expect an 11% sequential decline and 7% year over year decline. They note that in the second and third quarters, Hewlett-Packard faces difficult PC comparisons.

The Stifel team is now expecting net earnings of 87 cents per share on $25.67 billion in revenue for the quarter. They expect HP’s IPG segment to see a normalizing EBIT percentage, as the 19% TTM EBIT has been deemed to be “unsustainably high.”

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Focusing on HP’s management comments

Instead of the core numbers, the Stifel team is looking for details on several items, including what management has to say about normalizing free cash flow. They’re expecting the company to reiterate cash flow of between $3.5 billion and $4 billion for the full fiscal year.

However, they want to know how to think about next year and beyond because this year includes $1.3 billion in separation costs, including $500 million next year. Also HP expects to spend about $300 million on separation capital expenditures and see a negative impact of at least $500 million on currency exchange rates.

The Stifel analysts also expect HP to reiterate other parts of its guidance for the full year, including a decline of 4% to 6% in revenue year over year. They’ll be looking for confidence on revenue being flat with last year on a constant currency basis. Of course enterprise services will also be important.

New HP products

The analysts will also be focusing on the ProLiant Gen9 server cycle. Some suppliers of components for the servers have said that enterprise adoption of the servers has been slower than expected. Additionally, they’ll be looking for management comments on the ending of support for Windows Server 2003 in the middle of July and how this will benefit the company.

Other points of interest include the “hyper-scale market,” which includes HP’s new Cloudline servers. The costs of separation will also weight on Hewlett-Packard’s future results.

The Stifel team maintained its Hold rating on Hewlett-Packard heading into tomorrow’s earnings report. Shares of HP were flat with Tuesday’s closing price at $33.40 per share as of this writing.