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HP Meets Earnings Forecast

Computers: Results for quarter boost confidence that CEO Fiorina can gain enough support for merger with Compaq.

November 15, 2001|Reuters

Hewlett-Packard Co. met its quarterly forecast for the first time in more than a year with results announced Wednesday, raising confidence that Chief Executive Carly Fiorina can muster the votes to pull off a merger with Compaq Computer Corp.

Fourth-quarter net profit fell nearly 90%. Fiorina said she is not counting on an economic recovery next year, but HP's printer sales are relatively strong and both consumer and business revenues rose from three months earlier.

Tough cost-cutting led management to meet its own estimates for the first time since August 2000, giving Fiorina new leverage in the high-profile battle over the merger, which pits the most powerful businesswoman in America against the usually silent "royal families" of Silicon Valley.

"Despite the actions by some individuals, I think it's way too early to conclude that this merger will not occur," Fiorina said, referring to a rebellion against the merger by Hewlett and Packard family members.

"We remain convinced this merger will occur," she said, adding HP was talking with and will continue to engage the Packard Foundation, which holds a majority of founding family shares and which said it will consider fourth-quarter results while deciding how to vote.

Hewlett-Packard shares jumped $1.85, or 9%, to close at $22.08 on the New York Stock Exchange. Compaq shares gained $1.20, or about 14%, to $10. It was the most-active stock on the NYSE.

HP earned $361 million, or 19 cents a share, from continuing operations, down from $841 million, or 41 cents, a year earlier. Sales fell to $10.9 billion in the quarter, from $13.3 billion a year ago.

Wall Street analysts on average had expected earnings of 8 cents a share and sales of $9.9 billion, according to research firm Thomson Financial/First Call.

"They delivered better-than-expected revenue results and better-than-expected earnings results, so this would tend to increase shareholder confidence in the management team. So it is a positive that they got this done this way--a positive for the merger," said Buckingham Research analyst Jay Stevens.

"Obviously, a stronger stock price is going to make it easier to deal with some of the questions surrounding the merger," said Noel DeDora, a portfolio manager at Fremont Investment Advisors.

The spread between Compaq's share price and the value of the stock-swap deal based on HP's current share price narrowed to about 40% from more than 50%, indicating broad, but diminishing, skepticism that the deal will go through. The value of the deal has risen to near its original $25-billion level.

HP's net profit, including charges and one-time items, dropped to $97 million, or 5 cents a share, from $922 million, or 45 cents a diluted share, in the year-earlier quarter. The fourth-quarter results included a $282-million pretax restructuring charge.

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