Hewlett-Packard Sales Likely Rose 7.4%, Half as Fast as Dell
Feb. 16 (Bloomberg) -- Hewlett-Packard Co., a week after ousting Chief Executive Carly Fiorina for failing to fuel growth, will likely say today that first-quarter sales rose 7.4 percent, less than half as fast as revenue at Dell Inc.
Sales at Hewlett-Packard, the world's biggest printer maker and the No. 2 personal-computer company, probably increased to $21 billion, the average estimate of 20 analysts surveyed by Thomson Financial. Profit, excluding some items, probably rose to 34 cents a share, analysts said.
Hewlett-Packard, based in Palo Alto, California, struggled to boost sales and profit as Dell assumed the title of biggest PC maker last year and now is selling printers. Fiorina's failure to stem that threat after the $18.9 billion acquisition of Compaq Computer Corp. in 2002 led to her ouster. Some investors said a new leader may help revive growth.
``There is a lot of opportunity for profit improvement and margin improvement with a little bit better execution,'' said Kenneth Smith at Munder Capital Management in Birmingham, Michigan. His firm manages $37 billion and owns 2.9 million Hewlett-Packard shares.
The company said on Feb. 9 after ousting Fiorina that it would meet analysts' projections. Five analysts raised their estimates for Hewlett-Packard's sales in the past 30 days, including Lehman Brothers Inc.'s Harry Blount, J.P. Morgan Securities Inc.'s Bill Shope and Credit Suisse First Boston's Andrew McCullough.
Hewlett-Packard's shares rose 35 cents to $21.12 yesterday in New York Stock Exchange composite trading, and have gained 4.9 percent since Fiorina's departure. The stock fell 8.7 percent last year, compared with a 24 percent advance in Dell shares.
Of 25 analysts tracked by Bloomberg, seven suggest buying Hewlett-Packard shares. Fourteen say ``hold'' and four ``sell.'' Twenty-one analysts suggest buying Dell shares, and 19 recommend buying International Business Machines Corp.
Defending Compaq
The Compaq acquisition, controversial at the time because then-director Walter Hewlett started a proxy fight to block the deal, remains a sticking point with investors. Printers accounted for 73 percent of fiscal 2004 profit, and many holders want the unit to be spun off. Fiorina and the board resisted.
Some former executives defended the Compaq purchase. The company can squeeze more efficiency out of the PC business and further boost results, said Webb McKinney, who coordinated the buyout and ran the company's integration team for Fiorina.
``HP is better positioned today than prior to the merger,'' McKinney said in a Feb. 14 e-mail response to questions. ``They have a very strong and deep management team to continue to drive improvements, which is a major reason I remain so confident.''
Spinoff Speculation
Hewlett-Packard hasn't given a specific forecast for the quarter. Acting Chief Executive Bob Wayman on Nov. 16 said profit, excluding some costs, would be 72 cents to 74 cents a share on sales of as much as $42.3 billion in the first half of 2005.
The decision to ask Fiorina to resign ``was developed and made independent of quarterly results,'' Wayman said on a Feb. 9 conference call after her ouster.
Merrill Lynch & Co. analyst Steven Milunovich, who called in June for a spinoff of the printer division, said small gains in a ``more efficiently'' run computer business may produce significant earnings growth.
Every percentage point of operating margin improvement in the server and PC units combined would boost the company's profit by 11 cents or 12 cents a share, said New York-based Milunovich, the No. 2 hardware analyst in an Institutional Investor survey.
Missing Estimates
The profit margin in the server group was 1.1 percent in fiscal 2004 and may widen to 2.4 percent this year, he said. The margin in PCs is 0.9 percent. The margin in printers was 16 percent.
``The question for investors is whether HP, especially the computer business, can be run more efficiently and margins improved,'' Milunovich wrote in a Feb. 14 report. ``We think the answer is yes.''
Hewlett-Packard needs to show clients what its machines can do that IBM can't, to improve its sales force and to have more executives out promoting the company after years of relying heavily on Fiorina for that function, he said. He rates the shares ``buy'' and doesn't own them.
Fiorina, ranked by Fortune magazine as the most powerful woman in business from 1998 until last year, staked her reputation on the Compaq purchase. The stock had dropped 55 percent since she was named chief executive in 1999, the third- largest decline among the Dow Jones Industrial Average's members.
Hewlett-Packard missed analysts' estimates three times in the past eight quarters. Analysts including Sanford C. Bernstein & Co.'s Toni Sacconaghi, the top-ranked hardware analyst, expect the company to meet projections this time.
The company had a ``very strong November, a good December'' and then business slipped in January, he said.
Printers
Concerns that Round Rock, Texas-based Dell may hurt Hewlett- Packard after moving into the printer market are overblown, he said. Dell's printer shipments more than doubled to 5.2 million in the year ended Jan. 31. Hewlett-Packard shipped 47 million printers last year and has an installed base of 140 million units to Dell's 7 million, Sacconaghi said in a Feb. 14 note.
``As a result, shares gains from Dell will only modestly and gradually impact'' Hewlett-Packard's sales, said New York-based Sacconaghi, who rates Hewlett-Packard shares ``outperform.''
To contact the reporter on this story:
Connie Guglielmo in San Francisco at cguglielmo1@bloomberg |
