Hewlett Packard Company
) is scheduled to announce its fourth quarter 2012 results on
November 20, 2012. In the run-up to the earnings release, we
noticed a downward trend in analysts' estimates.
Third Quarter Overview
The company reported third quarter 2012 earnings per share
(EPS) of $1.00, beating the Zacks Consensus Estimate by a penny.
Revenues declined 5.0% year over year to $29.7 billion. Revenue
declines were broad-based across segments and geographies.
Gross margin in the quarter stood at 23.1% compared with 23.4%
in the year-ago quarter. Gross margin was impacted by
improvements in IPG and Software margins, but were offset to a
considerable extent by declines in PSG and Services.
Diluted GAAP loss per share was $4.49 compared with earnings
per share of 80 cents in the comparable prior-year quarter. This
loss can be attributed to the write down in lieu of Electronic
Data Storage (EDS). After adjusting for special items, non-GAAP
net earnings per share were $1.00 compared with $1.10 in the
The company projects fiscal 2012 non-GAAP diluted EPS of
between $4.05 and $4.07 and GAAP loss per share of between $2.23
Agreement of Analysts
Four of the 23 estimates for the fourth quarter were lowered
over the last 30 days with none moving in the opposite direction.
For the first quarter of 2013, two analysts made downward
revision over the last 30 days, while only 1 analyst revised the
estimate upward. For fiscal 2013, while five analysts revised
their estimates downward over the last 30 days, none made an
Analysts are generally cautious about the PC market, where
demand could weaken further. HP is likely to resort to aggressive
pricing, which would not however, fully offset the effect of weak
demand. As a result, its Personal Systems business would suffer.
Marketing and promotion strategies are expected to continue in
the near term, although the resultant negative effect on the
bottom line would be offset by recent restructuring actions.
This apart, both the industry and HP itself entered the
quarter with high inventories in a particularly low-demand
environment. Therefore, this inventory would also need to be
Although some analysts believe that the decision taken by the
company to continue with its PC business is correct, others are
of the opinion that the PC segment is going to be badly affected
due to its cannibalization by tablets. If the ultra portable
new-age devices from HP are a hit, the company may be able to cut
Analysts also believe that HP is facing significant
competition in the printing space given the continuous roll out
of printing devices at competitive prices by other technology
giants including Samsung,
), Epson and
). This may initiate a price war in the printing space, which may
hurt HP's margins to a certain extent.
Magnitude of Estimate Revisions
Following the announcement of third quarter 2012 results,
there have been certain estimate revisions. Though the Zacks
Consensus Estimate for the upcoming quarter has remained constant
over the last 30 days, it has gone down 4 cents over the last 90
days to $1.14. For the January quarter, the estimate dropped a
penny over the last 30 days and by 18 cents over the last 90 days
to 85 cents.
For fiscal 2012, the Zacks Consensus Estimate dropped by a
cent over the last 30 days and by 3 cents over the last 90 days
to $4.03 per share. The fiscal 2013 estimate dropped by 2 cents
over the last 30 days and by 13 cents over the last 90 days to
Hewlett-Packard dominates the computing world with its strong
business model and strong position in both PC and Server
segments. However, the recent downturn in the PC market and a
not-so-favorable pricing environment took a toll on the business
fundamentals of the company.
Management's decision to continue its PC business looks
prudent. On the other hand, HP is expected to witness significant
competition from the likes of
The company has a Zacks #4 Rank, implying a short-term Sell
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