Hewlett-Packard Co. announced a sharp drop in quarterly profit and issued a cautious outlook for the current period and fiscal year, moves suggesting the company hopes to hit the reset button after more than a year of turmoil.
Hewlett-Packard delivered better-than-expected earnings Monday, the first quarterly report since Meg Whitman took the helm. MarketWatch's Rex Crum highlights the quarter and tells Stacey Delo about the outlook for H-P. (Image: AP)
For the fourth period ended Oct. 31, H-P's net income fell 91%, as the company took charges related to shutting down its mobile-software business. Revenue fell 3%.
Meg Whitman, H-P's newly appoionted CEO said during a conference call.
"We didn't live up to our expectations in 2011."
"H-P was committed to getting back to the basics of executing business fundamentals."
The results capped off a tough quarter for H-P. In mid-August, the company made a series of announcements, including that it would explore a spinoff of its PC business and that it would spend more than $10 billion to acquire a software company. The news sent H-P's stock down 20%, and eventually led to the firing of CEO Leo Apotheker in September.
Ms. Whitman, the former eBay Inc. chief and an H-P board member, took his place and soon reversed course on the PC move. Ms. Whitman made it a priority to restore stability to H-P.
For the fourth period, H-P's net income fell to $239 million, or 12 cents a share, from $2.5 billion, or $1.10 a share, a year earlier. Revenue declined to $32.1 billion from $33.3 billion. After one-time charges are factored out, H-P put earning per share at $1.17, one cent higher than its forecast in August. Company executives suggested that figure is a sign that H-P could operate though adversity.
For the current quarter, H-P projected earnings per share, excluding one-time charges, between 83 cents and 86 cents, well below the $1.17 analysts expected. For the full year, H-P expects earnings, excluding items, of at least $4 a share; analysts on average had expected $4.90 a share, but much lower unofficial "whisper" estimates had been circulating on Wall Street.
In an interview, Cathie Lesjak, H-P's chief financial officer, called the outlook "cautious" and cited an uncertain economy and internal investments the company plans to make.
Another factor is the flooding in Thailand, which is causing shortages for hard drives, key component which are made there. Ms. Lesjak said she expects H-P to feel the impact for the first half of 2012. H-P will shift its inventory to higher-end computers and may have to raise prices, she said.
Still, some analysts were heartened by what they saw as an appeal for a fresh start by the Palo Alto, Calif., company.
Brian Marshall, an analyst at ISI Group said.
"They have to reset expectations. This is exactly what we needed to see."
H-P shares were down 4% at $26.86 in 4 p.m. trading on the New York Stock Exchange. The stock declined to $26.29 in after-hours trading following the announcements.
The company's PC business seemed relatively unaffected by the spinoff talk. Revenue in the segment, H-P's largest, declined 2% to $10.1 billion. Sales to consumers slipped 9% amid greater falloff in PCs, while sales to businesses increased 5%. Ms. Whitman said in an interview that the full impact of the spinoff exploration might occur in the current quarter.
H-P's services business, which has been struggling lately, grew 2% to $9.3 billion from a year earlier. But revenue in the company's server group fell 4% to $5.7 billion, and its big printer business fell 10% to $6.3 billion.
Investors have expressed concern lately with H-P's use of cash. At the end of October, H-P had $8 billion in cash, down from $13 billion at the end of July. The company said it had $22.6 billion in long-term debt, up from $19 billion in July.
Ms. Whitman said that H-P was committed to rebuilding its balance sheet and that the company wouldn't be making any large acquisitions soon. She still expected to use funds to buy back shares.
Overall, she said, H-P should grow in line with or better than the overall economy, but would focus on growing income faster and producing cash.
COMMENTARY: In a blog post dated September 23, 2011, I commented on the appointment of Meg Whitman as new CEO of Hewlett-Packard, replacing the ousted former CEO Leo Apotheker, and I also had some fun with the revolving door of CEO's at H-P.
In another blog post dated October 12, 2011, I commented on Meg Whitman's decision to "rethink" the spinoff of HP's personal computer division. Although Meg Whitman provided some good reasons for not spinning off the personal comptuer division, I pointed to that division's terrible profit margins, and joked that HP had not really capitalized on any economies of scale. In fact, I stated infatically, that if HP had true economies of scale and brand loyalty, it should be commanding premium prices and generating higher profit margins. Instead, HP has gotten itself into an irreversible price war with Lenova and Dell, lost market share to Lenova, and that strategy had hurt its image with consumers as a manufacturer of premium quality PC's.
In a blog post dated August 21, 2011, and after doing considerable financial analysis, I came to the conclusion that Mr. Apotheker's decision to spinoff the HP's personal computer business was the right decision. Personal computers are a bad business for HP. All this talk of economies of scale is just a poor execuse for keeping this subpar performing division.
I am beginning to really question HP's decision-making. Ray Lane, HP's Executive Chairman, and that whishy-washy HP board of directors have made some terrible decisions. That HP board is as much a part of the problem.
The HP board also approved the decision to get into the tablet business when they introduced the HP TouchPad, only to take it off the market after poor sales. Then they set a record for selling tablets during their $99 fire sale. Why did they get into the market in the first place? The TouchPad was a superior tablet. They just gave up on a huge potential market. Management should've had more patience and thought longterm. I fault the board of directors for this.
The same punks (Meg and Lane) agreed with Leo to take the TouchPad off the market and spinoff the personal computer business, and now reverse course. You would think Meg had a plan and strategy before she agreed to take the HP CEO job.
HP's Q4 2011 net income drop from $2.5 billion in Q4 2010 to $239 million in Q4 2011 and YTD revenue decline to $32.1 billion from $33.3 billion are total disasters. HP is carrying too much debt and their cash balance is a direct result of their poor margins on their personal computers. I also question the decision to acquire Automy Software for a booming price tag of $10 million.
Here's the Hewlett-Packard (HPQ) QR 2011 Earnings Call - November 21, 2011 from Seeking Alpha.