5/16 HWP ($30 unchanged) Sees U.S. Bumping Bottom, Profit Falls
By Peter Henderson
SAN FRANCISCO, Calif. (Reuters) - Printer and computer maker Hewlett-Packard Co. (NYSE:HWP - news), said on Wednesday its second-quarter net profit fell 66 percent due to economic weakness and internal troubles.
The U.S. economy appeared to be bumping along a bottom, but sales might drop in the third quarter as Hewlett-Packard focused on profitability and dealt with a depleted order pipeline, executives said.
Chief Executive Carly Fiorina told a conference call she could not say when the economy would pick up. ``While we don't see it getting substantially worse, we don't see it getting a lot better in the near term,'' she said.
Net profit at the No. 3 personal computer maker fell to $319 million from $935 million in the quarter a year ago, as sales dropped 4 percent to $11.6 billion from $12 billion.
``Our results continue to be impacted by significant macroeconomic challenges and particular weakness in consumer and capital spending in the U.S. and Europe,'' Fiorina said in a statement.
``But we can't pin all of our issues on the economy.''
Hewlett-Packard shares rose on Instinet to $27.94 from a $26.74 close on the New York Stock Exchange (news - web sites).
Earnings per share on an operating basis topped Hewlett-Packard's target 13-17 cents, reduced last month when analysts expected more than double that.
But Analysts polled by Thomson Financial/First Call by Wednesday had forecast a similar range as the company and an average of 15 cents, which the company beat with a profit of 18 cents per share after 43 cents a year ago.
Nevertheless, ``There doesn't seem to be a whole lot of surprises relative to what they preannounced,'' said John Park, a computer hardware analyst for Independence Investment Associates, an affiliate of John Hancock.
HP shares have underperformed the American Stock Exchange Technology Hardware Index (^HWI - news) by about 15 percent this year.
ONGOING PROBLEMS
Analysts who have watched Hewlett-Packard miss and mark down estimates for months are watching for evidence that the company can manage well through the downturn.
``The problem probably lies both with HP itself and the macroeconomic environment,'' Goldman Sachs analyst Laura Conigliaro wrote in an email.
Hewlett-Packard is still working to repair relations with resellers who found HP's sales force treading on their turf, leading many to embrace competitors, while home personal computers sales, showing consumer weakness, fell 15 percent.
A slew of new products would improve profitability of the company in its third quarter, although the firm would lose money on low-end printers in order to gain customers who would buy printing products down the line, executives said.
Chief Financial Officer Bob Wayman said gross margin profit margin, the widest indication of profit, would rise to 27-27.5 percent in the third quarter from 25.3 percent this quarter, when profitability was hit by $155 million in write-downs.
New, more profitable products including Superdome, the flagship high end computer server running Unix (news - web sites) software, LaserJet printers and storage products would improve margin, he said.
The service business improved as Hewlett-Packard reached out to build and manage systems for customers and currency woes, which have dogged the company recently, would improve.
But Fiorina and Wayman were asked repeatedly by analysts to prove that relations with resellers were improving. They replied that rules had been set for the sales force and progress was being made.
Wayman also was asked to explain why revenue might fall if the economy had hit bottom.
``We have in the past quarter or so been living to some extent off backlog'' orders he said, explaining that the company would have to refill its pipe as well as shipping products that it could book as sold.
``That is just the reality in some areas such as the storage arena, or the Unix arena,'' he said.
Fiorina said on Wednesday sales could be flat or drop up to five percent for the current period, rather than flat, her prediction last month.
Wayman said he was comfortable with analysts' forecasts of operating earnings per share, which averaged 23 cents and ranged from 20 to 26 cents, he said.
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HP Earnings Drop, Sales May Fall (May 16) |
