HP's mixed bag: Sales weak across all units, earnings on target; Outlook weaker than expected

HP's mixed bag: Sales weak across all units, earnings on target; Outlook weaker than expected

Summary: updated: HP's first quarter showed some strain as revenue was below expectations across the board, but cost-cutting allowed the IT giant to meet Wall Street estimates.The company, which was viewed as recession proof by many, delivered first quarter earnings of $1.

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updated: HP's first quarter showed some strain as revenue was below expectations across the board, but cost-cutting allowed the IT giant to meet Wall Street estimates.

The company, which was viewed as recession proof by many, delivered first quarter earnings of $1.9 billion, or 75 cents a share, on revenue of $28.8 billion, up 1 percent from a year ago (statement). Earnings on a non-GAAP basis were $2.3 billion, or 93 cents a share. Wall Street was expecting HP to report earnings of 93 cents a share on revenue of $31.93 billion.

HP's outlook also left a little to be desired. HP said second quarter earnings will be 70 cents a share to 72 cents a share. On a non-GAAP basis, earnings for the second quarter will be 84 cents a share to 86 cents a share. Meanwhile, revenue will be down 2 to 5 percent from a year ago. For the second quarter, HP was expected to report earnings of 89 cents a share.

In addition, HP is expecting fiscal 2009 revenue will also fall 2 percent to 5 percent. Earnings for fiscal 2009 will be $3.19 a share to $3.31 a share, with non-GAAP earnings coming in at $3.76 a share to $3.88 a share. HP is assuming that current market conditions persist.

Wall Street was expecting annual earnings of $3.77 a share.

My takeaways:

  • HP isn't recession proof;
  • HP has enough leverage to hit its profit targets;
  • But don't expect a lot of growth;
  • On the bright side HP at least can provide an outlook (most companies can't).

Shares fell in after hours trading:
In a conference call with analysts, CEO Mark Hurd said the company's strong portfolio provides it with the flexibility it needs to be more competitive. That portfolio has kept customers interested and the outlook looks promising, he said - "The funnel is strong, the customer reception is strong."

Despite the upbeat tone in his voice as he talked about confidence in the company, even in uncertain times, he was careful to use words like "prudent" and "nimble" as a way of describing the company's approach to the future. On the call, Hurd said the company is being realistic about the market in upcoming quarters and is trying to leverage its portfolio and model as a way to better position itself for the recovery. He said:

I don't want to bank on the fact that the economy is going to get better... I hope it gets better in Q2 but that's not how we've decided to run the company. We've decided to be prudent and... make sure we're in a lean position as we go forward.

Hurd also said it was too soon to draw any conclusions about netbooks, which have "done well for us." He said the company is "just out" with netbooks and it will take some time to develop sales metrics - "We'll have to see over time how that evolves."

By the numbers:

  • HP's PC unit was whacked as sales fell 19 percent to $8.8 billion. Unit shipments were down 4 percent in the first quarter. Commercial PC sales fell 19 percent as consumer sales fell 18 percent. HP's PC unit delivered a profit of $435 million, down from $628 million a year ago.
  • The printing business didn't do any better. HP's imaging and printing group saw revenue fall 19 percent to $6 billion. Supplies revenue fell 7 percent. However, HP still has a printing cash cow with an operating profit of $1.1 billion, flat with a year ago.
  • Enterprise storage and server revenue was $3.9 billion, down 18 percent. Storage revenue fell 7 percent. Operating profit was $405 million, down from $673 million.
  • The software business saw a revenue decline of 7 percent to $878 million. Operating profit was $140 million, up from $49 million.
  • Services revenue was up 116 percent to $8.7 billion, but that was all because of the EDS acquisition. Operating profit was $1.1 billion.

Here's a look at revenue growth over the past few years: (Click to enlarge)
And here's the revenue breakdown by product line: (Click to enlarge)
Sam Diaz contributed to this post

Topics: Enterprise Software, Banking, Hewlett-Packard

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7 comments
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  • HP Pay cut

    In an email timed with the quarterly results Mark Hurd announced across the board pay cuts for virutually all employees. Hurd takes a 20% cut, most of the executives take 10 or 15. Exempt employees take 5%. Non-exempt 2.5%.

    Details on when this becomes effective haven't been announced.
    radslnshutchence@...
    • As one personally affected

      As one being _affected_ I can say the 5% hit will be effective March 16th.

      As EDS was never known for paying at or above market rates, and that services really carried HP this quarter, many of us here feel especially stung. It will be especially challenging, to say the least, for HP to retain talent heading into an eventual recovery. For top performers, it will difficult even in the short term.
      Lt. Dan
      • HP doesn't want top talent, they want cheap labor

        "It will be especially challenging, to say the least, for HP to retain talent heading into an eventual recovery. For top performers, it will difficult even in the short term."

        The announcement that Hurd made last year proudly proclaimed that they would lay off almost 30,000 people from EDS and rehire half of those positions in India, Brazil, and the Philippines. All to cut costs. Doesn't sound like talent retention is a big issue with Hurd.

        It galls me to see an American institution that so blatantly engages in un-American activity. I only hope that HP isn't getting any of the great taxpayer handouts that Obama is throwing at big business.

        terry flores
  • RE: HP?s mixed bag: Sales weak across all units, earnings on target; Outlook weaker than expected

    Well as their ascent to profitability was one of cooking the books and lobbying for unethical tax breaks, rather than innovation or fair market competition, I see no future
    for this company.
    dcsos
  • Reaction to current market situation

    Though I have got a pay cut of 5%, I stand with my company on it's decision. Looking at the quaterly results, it demands a mandatory cost saving infrastructure. As the CEO doesn't want to reduce the emloyee strength, the pay cut means an alternative acceptable solution rather targeting the head count. While many of the HP's promising units claimed revenue decline in first quater, HP is preparing itself to position firmly in economy 2009.
    muru_apr@...
    • Standing with a CEO who made 42M last year!

      You are amiss to stand behind a CEO who just NOW decides exec pay should be cut, including his own excessive pay. What he's really saying is he has NO WHERE else to slash for short term cash. His mindset that he should be immune to this economic challenge last summer and living in his ego centric world of "I'm HP" has finally come to fuition and as you and your fellow employees positions are "rerated - see pay cut, to current market benchmarks" understand this is all part of his MASTER PLAN and the timing of the economic conditions is just an excuse to justify to change to you and fellow employees. He began this effort well before the economic condition. You have obviously been "assimilated" and I wish you well in a company led by Mr Slash for Cash.
      KO from TO
  • Not content to make money...

    I realise the "big boys" are "unhappy" if they are not "rolling in it". For some of us, just MAKING a profit, never mind one in the billions of dollars, is a good thing. Easy to lose perspective when the number are so big. Word to HP: Be happy you can still fleece the general populace with your outrageous prices while everyone is running around screaming "the sky is falling"...
    naibeeru