HP Beats Estimates, Is Upbeat on Outlook

SAN FRANCISCO —  A one-time tax charge sent quarterly profit tumbling at Hewlett-Packard Co. on Tuesday, but the computer maker forecast a stronger bottom line as new Chief Executive Mark Hurd begins restructuring the company.

Despite the charge, HP’s fiscal third-quarter results beat Wall Street expectations and its outlook for the current quarter was rosier than that of rivals Dell Inc. and Gateway Inc.

Shares in Palo Alto-based HP rose more than 7% in after-hours trading.

American Technology Research analyst Shaw Wu said HP’s relatively strong performance and aggressive forecast could signal a new era under Hurd, who replaced ousted CEO Carly Fiorina on April 1.

“HP is a founding company of Silicon Valley, but has been a punching bag for Dell for many years,” Wu said. Last week, though, “Dell missed numbers and guided down, and now HP is fighting back.”

Dell is the world’s largest maker of personal computers and has battered HP in PC pricing wars for years. HP is the world’s second-largest PC maker and No. 1 printer manufacturer.

HP earned $73 million, or 3 cents a share, in the quarter that ended July 31, compared with $586 million, or 19 cents, a year earlier. Revenue rose 9.9% to $20.8 billion.

Excluding the tax charge on $14.5 billion in foreign earnings that HP is repatriating in the third and fourth quarters, HP earned $1.2 billion, or 36 cents a share. Analysts surveyed by Thomson Financial had expected 31 cents.

HP shares fell 39 cents to $23.70 in regular trading, but snapped back to $25.29 in late trading after the earnings announcement.

“They blew earnings away by 5 cents and I think that’s a great performance,” said Roger Kay, president of the research firm Endpoint Technologies Associates. “I don’t know how much is due to Mark Hurd or operational steps that were put in place before he got there. I think it’s a combination of both things. It’s clear that he’s very cost-focused and operational-focused and he’s already got the operation humming.”

Tuesday’s results reflected the first full quarter under Hurd, who came to HP from NCR Corp. with a reputation for cutting costs and improving efficiency. But it was too early for the bottom line to show the effects of a restructuring announced last month. Hurd said he would cut 14,500 jobs, or about 10% of HP’s workforce. HP will record $1.1 billion in restructuring charges spread over six quarters, starting in HP’s fiscal fourth quarter.

For the current quarter, revenue is expected to be $22.4 billion to $22.8 billion, with operating earnings of 44 cents to 47 cents a share, according to Chief Financial Officer Robert Wayman. Analysts had expected 43 cents.

“We have succeeded in doing two difficult things at once: We stayed focused on delivering a strong quarterly performance and we launched a significant restructuring effort,” Hurd said in a conference call with reporters.

HP’s PC business, known as the personal systems group, recorded strong growth with an operating profit of $163 million on sales of $6.4 billion, up 8%. HP does not report the net income of its business groups.

“Consumer notebooks did particularly well,” Wayman said on a conference call with financial analysts. “We refreshed the lineup six to nine months ago, and this quarter consumer notebook revenue exceeded consumer desktop revenue for the first time.”

The imaging and printing group, traditionally the source of most of HP’s profits, earned an operating profit of $771 million on sales of $5.9 billion, up 5%.

Enterprise and storage systems, which dragged earnings down last year, had an operating profit of $150 million, contrasted with an operating loss of $211 million last year. Revenue was $4 billion, up 20%.

HP’s performance and optimistic outlook contrasted sharply with the same quarter a year earlier, when Fiorina cited “unacceptable execution” and fired three top executives.

In February, Fiorina was fired by HP’s board of directors for failing to generate consistent profits after the $19-billion acquisition of Compaq Computer Corp. in 2002.