The world’s largest computer maker Hewlett-Packard Company (HPQ) recently came out with a revised version of its first quarter 2010 earnings, whereby the company lowered its net profit by $73.0 million, providing for litigation expenses to be paid by its subsidiary, Electronic Data Systems (EDS).
In February 2010, HP reported first quarter net income of $2.32 billion, or 96 cents a share, which is now restated downwards at $2.25 billion, or 93 cents a share. HP has used these 3 cents to increase the reserve in connection with the litigation expenses expected to be incurred by EDS. Excluding these adjustments income was revised to $2.59 billion, or $1.07 a share, a reduction from the previously reported non-GAAP earnings of $2.67 billion, or $1.10.
Hewlett-Packard, in its media statement declared that this fund is required by the company’s subsidiary Electronic Data Systems, which is liable to pay $112.0 million to the British Sky Broadcasting Group PLC of U.K. British Sky Broadcasting filed this suit against EDS in 2004 over a dispute related to a customer management contract. HP has already made a payment of $320 million in relation to the case.
Although this is a slightly negative development for the computing major, the company did not provide any revised guidance for the second quarter, and has kept the previous revenue guidance intact at $29.4 billion to $29.7 billion; with a GAAP diluted EPS of $0.89 to $0.91 and non-GAAP diluted EPS of $1.03 to $1.05.
The Zacks Consensus Estimate for the upcoming quarter is $1.05, exactly same as the most accurate consensus estimate, leaving no room for an upside movement. Although the company has provided an average earnings surprise of 1.92% over the last four quarters, this litigation could put some pressure on the EPS, if continued for a long period.
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