H-P's 4th-qtr profits top forecasts, revenue light
November 17, 1998 12:28 AM EST
(Adds additional analyst, CFO comments, details)
By Duncan Martell
PALO ALTO, Calif., Nov 16 (Reuters) - Hewlett-Packard Co (NYSE: HWP). Monday reported fourth-quarter profits that topped expectations, but revenues were disappointing as the world's third-largest computer maker was hurt by continued weak demand in Asia and a slight slowdown in Latin America.
The company's profit before a charge rose to $832 million, or 79 cents a share in the three months ended Oct. 31 from $806 million, or 75 cents, in the year-ago period. The results surpassed analysts' forecasts of 74 cents a share, according to First Call Corp., a research firm that tracks such estimates.
Although the Palo Alto, Calif-based company's overall results were better than expected, sales in Asia -- long a trouble spot -- remained weak. Sales in Europe were improving at a time when Dell Computer Corp (Nasdaq: DELL)., for example, was showing a 68 percent surge in its European revenues during its most recent quarter.
"Anyway you want to slice this, it was not a good quarter," said Bill Milton, an analyst at Brown Brothers Harriman in New York. He was expecting revenue of $12.7 billion, and added that a lower tax rate of 24.7 percent added 5 cents to per-share earnings. "But they're doing well on keeping costs down."
Including charges of $170 million, the company posted net income of $710 million, or 68 cents a share, in the most recent quarter. Revenue rose 4 percent to $12.2 billion from $11.8 billion in last year's fourth quarter.
Strong sales of personal computers and printers -- which account for about 35 percent of H-P's revenue -- helped offset Asian and Latin American weakness.
Also, The company recently had its largest-ever launch effort of new printers and executives said they were not yet seeing significant pressure from Xerox Corp (NYSE: XRX)., which has set its sights on the printer market, H-P's bread and butter.
"The roll-out of their new printers has been sensational," said Stephen Dube, an analyst at Wasserstein Perella Securities in New York.
In the first half of the year, H-P's expenses ballooned 18 percent, prompting the company to tighten its belt and offer 2,500 workers a buyout package and 9,000 employees in Singapore will take a mandatory four-day vacation in December.
The company's cost-cutting efforts are paying off. Operating expenses expressed as a percentage of revenue and excluding the fourth-quarter charge was 22.9 percent in the most recent quarter, down from 24 percent a year-ago.
"They're doing a great job on getting expenses down," said Daniel Kunstler, an analyst at J.P. Morgan Securities in San Francisco."
About 1,800 employees have accepted the buyout packages, for which H-P took the bulk of the charge, said Bob Wayman, chief financial officer, on a conference call with analysts.
Orders, closely watched by analysts to gauge future revenue growth, rose 5 percent to $12 billion in the fourth quarter from $11.4 billion a year ago.
H-P's test and measurement business was the worst hit, falling 19 percent to $950 million from $1.17 billion a year ago. That business was hurt by the continuing slump in Asia, which has hit the semiconductor industry particularly strongly.
"Top-line growth was weak," Wayman said on the conference call. "Restoring growth is clearly a key challenge for us in the months ahead."
Because of tough comparisons against a year ago, H-P told analysts to expect revenue gains in the first quarter of 5 percent to 7 percent above the $11.8 billion it had in the first quarter of fiscal 1998.
H-P continued to rack up gains in the consumer PC business, where unit shipments of its Pavilion computers more than doubled from a year ago. Unit shipments of all its PCs, including those sold to businesses, were more than twice the industry average, H-P said.
Sales of its servers using the Unix operating system were mixed, with good growth at the high end and slower growth on the low-end.
H-P's stock rose 88 cents to $66.13 in composite New York Stock Exchange trading, before the company released its earnings. H-P stock rose 63 cents in after-hours trading to $66.63.
REUTERS
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