HP Profit Hints At Turnaround

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HP has beaten Wall Street expectations with its latest financials, and posted a profit that hints at a possible turnaround

Hewlett-Packard had a good day on 21 February after the Palo Alto, California-based IT giant revealed that it lost less money than it had feared during its first quarter 2013 results.

Indeed, HP won’t be seeing red anytime soon – not with more than $1 billion (£654m) in net earnings each quarter. It is still a very profitable IT company, just not as supremely profitable as it has been in years past. Nonetheless, things may finally be looking up for the world’s largest all-purpose IT provider.

Beat The Street

For the first quarter, HP’s revenue of $28.4 billion (£18.6bn) was down 6 percent year over year and down a bit less (4 percent) when adjusted for the effects of currency. On that revenue, HP banked $1.2 billion (£784m) in profit, down 16 percent year over year. Sharewise, the company posted earnings per share of 82 cents (£0.53), down 11 percent from Q1 2012.

However, those numbers beat Wall Street expectations in a flat to shrinking personal computing market, so its stock jumped 6 percent in after-hours trading. HP common stock was selling for $18.09 (£11.83) at 2:30 Pacific time, up from the day’s close at $17.10 (£11.19).

Last quarter, HP offered guidance that projected 68 cents (£0.44) to 71 cents (£0.46) in earnings per share, so the 82-cent figure was good news. The not-so-good news included the fact that the company lost revenue in each of its major segments: printers, personal systems, servers and enterprise services.

The one standout hardware sub-section was the performance of HP’s new-generation converged storage systems, led by the 3PAR product line, which was up 18 percent in Q1. HP’s traditional storage systems – which include digital tape machines and EVA disk systems – slipped by 6 percent.

Meg Whitman, CEO, HP with horseLong Road Ahead

CEO and President Meg Whitman has reiterated that “HP has work to do” for the entire year-and-a-half she’s had the chief executive position, and she dusted off that phrase once again. No other phrase describes HP better, however.

Serious problems still hound the company, which lost revenue in all of its main businesses in Q1, but the show of progress indicates that the company’s turnaround efforts are gaining traction. Whitman has said many times that it will be several years before HP is back on a growth trend.

“Turnaround happen when old and new customers believe,” Whitman said on the conference call. “The patient shows some improvement. We beat our non-GAAP diluted EPS outlook for the quarter by 11 cents per share, driven by improved execution, improvement in our channel and go-to-market efforts and the impact of the restructuring program we announced in May 2012.”

“While there’s still a lot of work to do to generate the kind of growth we want to see, our turnaround is starting to gain traction as a result of the actions we took in 2012 to lay the foundation for HP’s future.”

No Breakup

Whitman, in answer to a question on the conference call, said that despite talk in the financial markets that HP should consider breaking into smaller pieces, said “we have absolutely no plans to break up the company. I feel quite strongly that we’re better and stronger together.

“Over the last 10 years, HP has put together the most valuable franchise in IT, particularly as  we look forward to the most significant change in how IT bought, paid for, and consumed, and how applications have to be made more agile. We have a terrific set of assets, and we’re going to drive that to really great business performance. Most importantly, customers want this company to be together.”

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Originally published on eWeek.

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