Hewlett-Packard Performs Well – Analyst Blog

Hewlett-Packard (HPQ) reported its third quarter 2010 earnings per share (EPS) of $1.08, exactly in line with the Zacks Consensus Estimate. However, revenue of $30.7 billion exceeded the Zacks Consensus Estimate of $30.3 billion.

 

 

Revenues increased 11.0% from $27.6 billion reported in the year-ago period, which included a favorable foreign currency benefit of about one percentage point.

 

Revenues increased across all business segments on a year-over-year basis. As per geographic regions, the Americas reported a 12% increase in revenue to reach $14.2 billion. Revenues increased 9% in Europe, the Middle East and Africa (EMEA) to $10.9 billion and 14% in the Asia Pacific region to $5.6 billion. International markets accounted for 63% of total revenue in the third quarter, with revenues in the BRIC countries (Brazil, Russia, India and China) increasing 21% on a year-over-year basis and comprising 11% of total revenue.

 

 

The HP Enterprise Business (HEB) reported revenues of $13.9 billion, up 6.1% from $13.1 billion in the year-ago quarter. This includes Enterprise Storage and Servers (ESS) revenues, which increased 19.1% year over year, driven by the increase in Industry Standard Server revenues, which moved up 31.3% year over year. This apart, Storage revenue increased 9.7%. Services revenues increased 1.0% on a year-over-year basis to $8.6 billion, attributable to the rise in Infrastructure Technology Outsourcing revenues, while HP Software revenues increased 1.9% to $863.0 million.

 

Personal Systems Group (PSG) revenues were $9.90 billion, up 17.0% year over year, driven by a 12.0% year-over-year increase in unit shipments. The company maintained its global leadership position in the PC segment. Notebook revenues were up 10.3%, while Desktop revenue climbed 26.9%.

  

Imaging and Printing Group (IPG) revenues were $6.2 billion, up 9.0% year over year. Commercial hardware and consumer hardware reported increases of 28.0% and 3.5%, respectively. Moreover, Supplies revenues moved up by 5.0%. The company has introduced innovative new products in this segment. The company has launched ePrint platform and the ePrintCenter and announced that it will be expanding the portfolio of Web-connected printers to include all printers above $99.

 

HP Financial Services (HPFS) revenues were $764.0 million, up 14.0% year over year. Financing volumes increased 3.0%, while net portfolio assets increased 13.0%.

 

 

Gross margin in the quarter was 23.4%, flattish compared with the year-ago quarter, and up 30 basis points sequentially. Gross margin was impacted by normal seasonality in the last quarter. Operating expenses increased 10% compared with the year-ago quarter, pointing to the fact that the company accelerated investments to drive long-term growth, including increases in R&D and also building the Enterprise sales force. Operating margin on a GAAP basis was 8.0% in the quarter, flat with the year-ago quarter, while non-GAAP operating margin of 11.0% also remained flat compared with the year-ago quarter.

 

Diluted earnings per share on a GAAP basis were $0.75 in the third quarter, compared with $0.69 in the prior-year period. Financial information on a non-GAAP basis excludes after-tax costs related primarily to the amortization of purchased intangibles, restructuring charges and acquisition-related charges. Excluding the above mentioned items, the non-GAAP EPS was $1.08, compared with $0.92 in the prior-year period.

 

 

Hewlett-Packard generated $3.3 billion of cash from operations versus $3.1 billion in the previous quarter. The company also utilized $2.6 billion of cash during the quarter to repurchase approximately 55 million shares of common stock in the open market.

The company ended the quarter with $14.7 billion in cash and short-term investments versus $14.5 billion in the previous quarter. The company exited the quarter with a long-term debt balance of $12.2 billion.

 

 

For the fourth quarter of fiscal 2010, HP estimates revenues of $32.5 billion to $32.7 billion, GAAP diluted EPS of $1.03 to $1.05 and non-GAAP diluted EPS of $1.25 to $1.27.

  

For fiscal 2010, the company expects revenues in the range of $125.3 billion to $125.5 billion. GAAP diluted EPS is expected to be in the range of $3.62 to $3.64, and non-GAAP diluted EPS is expected to be in the range of $4.49 to $4.51.

 

 

The company has a strong business model, and still rules the computing world with a leadership position in both PC and Server segments. Hewlett-Packard is also well positioned to challenge networking leader Cisco Systems Inc. (CSCO), and gain share in the networking market. The company also expects to benefit substantially from the increase in IT spending and has projected an encouraging guidance for fiscal 2010.

 

Despite the company’s market position and compelling product line, we remain cautious about future growth, especially on the consumer side. We also see the departure of CEO Mark Hurd as a negative, since we believe that retention of key personnel in the increasingly competitive market is imperative in the current market environment. We continue to believe in the growth story of the company, but would like to witness better performance from its printing unit in the upcoming quarter.