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HP earnings beat estimates despite declining revenue

February 21, 2013|By Chris O'Brien
  • Meg Whitman continues her bid to turn around HP.
Meg Whitman continues her bid to turn around HP. (Shanghai Daily )

(This post has been updated)

Hewlett-Packard Co. reported earnings for its fiscal first-quarter Thursday that sailed past analyst estimates despite shrinking revenue.

The results were some much-needed good news for a company that has drawn criticism on Wall Street because of its recent performance. During the previous two quarters, HP announced losses totaling $15.3 billion as the company suffered write-downs on a few ill-fated acquisitions.

Meg Whitman, the tech giant's chief executive, said the quarter was "better than expected" but also acknowledged that plenty of work remains to reach the goal of returning HP to being a growth company. 

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"We did better than we expected on the bottom line," Whitman told The Times. "We still see declining sales, which is something we want to fix. We're on it. We've got a plan."

HP posted a profit of $1.2 billion, or 63 cents a share, for the last three months of 2012. That was a 16% drop from the year-ago period when the company reported a profit of 73 cents a share.

Stripping out some accounting items, the company would have earned 82 cents a share -- easily surpassing Wall Street projections of 71 cents a share.

Sales declined 6% to $28.36 billion during the quarter, which was still slightly above analysts' expectations.

Highlighting the magnitude of the challenges, all but one segment of HP's business saw revenue decline in the first quarter from the same period a year ago: personal systems group revenue fell 8%; printing fell 5%; enterprise group fell 4%; enterprise servcies fell 7% and software fell 2%. Only financial services saw an increase, of 1%.

Still, the earnings report cheered investors, who drove the stock up $1.25, or 7.3%, to $18.35 in after-hours trading.

Whitman shared that optimism about the progress being made in her long-term turnaround plan. She has said in the past the the company probably wouldn't start to see revenue growth until 2014.

"I actually think part of what we've being doing is starting to pay dividends," she said. "I think we've got the best product lineup we've had across the business units in a decade."

In the wake of rival Dell's buyout announcement and its recent weak earnings, Whitman remained confident that HP's Personal Systems Group, which includes PC sales, has a strong future. 

Whitman said Dell appeared to be pursuing a strategy of commoditization, making the lowest cost machines possible. By contrast, she said HP is attempting to rethink features and design, to make distinctive gadgets that could deliver higher margins and revenues.

Whitman said the company continues to broaden its definition of PSG to include all computing platforms, including tablets and eventually smartphones. HP has recently announced plans to move beyond Microsoft's Windows to make devices based on Google's Chrome operating system. As of now, the company had no further updates regarding when it might return to making smartphones.

There has also been some murmuring on Wall Street that HP should consider ditching this business. Whitman has said she confident that keeping HP in one piece is the best strategy.

"My view is that we are at the beginning of a new wave of innovation in the personal system space," she said. "We're excited about this space. Absolutely."

Regarding Autonomy, Whitman said HP continued to uncover more information related to the allegations it made last Fall of widespread accounting fraud at the company. She said HP continues to cooperate with the U.S. Department of Justice and the U.S. Securities and Exchange, which are both conducting formal investigations. 

"We stand by those original allegations," she said. "And in fact, we feel stronger about them today given what we know."

HP acquired British-based Autonomy in 2011 for $11 billion. Autonomy co-founder Mike Lynch has repeatedly denied HP's allegations of accounting fraud. 

Also:  

Can CEO Meg Whitman save Hewlett-Packard?

Meg Whitman on fixing HP and Autonomy's troubles

Autonomy founder responds to HP filing and DOJ investigation

Follow me on Twitter @obrien.

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