) shares are sharply lower Thursday afternoon following
first-quarter results and a weak outlook. While analysts are mixed
on the numbers, they are making one thing clear: a turnaround has
not yet begun.
HP reported revenue of $30.04 billion and pro forma EPS of 92
cents, mixed with views calling for revs of $30.7 billion and EPS
of 87 cents.
Looking ahead, HP sees second-quarter EPS of 88 cents to 91 cents,
versus 95 cents expected on the Street.
Analysts have chimed in following the numbers:
- Goldman Sachs said EPS beat on lower-than-expected net
interest expense. On the light revs, Goldman thinks it was more
company-specific issues than anything else. "Although we used to
be concerned about year-end IT spending as 2011 came to a close,
most IT hardware companies have observed better than expected
business conditions in their December and January quarters. We
believe the challenges posed by HDD shortages and cyclicality
became exacerbated by HP-specific issues-for instance, the
underinvestment in the services segment, the strategic review of
PSG last fall, the abrupt changes in management, Oracle's
withdrawal from supporting Itanium-based servers, and HP's
outsized exposure to the consumer inkjet segment."
The firm does think HP's PSG is finding its footing: "Company
management acknowledged that its execution had not been at the
level one would expect from a supply chain like HP's. On a more
positive note, operating margins of 5.2% were ahead of our 4.5%
estimate as the company avoided lower-margin sales amid the
rising costs for HDDs."
Goldman now sees fiscal 2012 "revenues of $123.34 billion and EPS
of $4.00, versus $123.71 billion and $4.00 previously." Goldman
said the turnaround is "not yet apparent."
The firm maintains a
rating and $26 price target.
- Wells Fargo said gross margin of 22.4 percent was negatively
impacted by a lower mix of printing supplies, a strong yen, and
hardware pricing pressure.
The firm said, "We are adjusting our estimates slightly as
follows: For FY2012, we project revenue of $122.3B and EPS of
$4.00, versus our prior estimate of $122.1B and EPS of $4.05. HP
is clearly still working out its turnaround strategy and there
continues to be the two big overhangs for the business, in the
HDD shortages, and the supply channel inventory correction that
are not likely to be resolved until late Q3 and into Q4....That
said, the company has a couple new product cycles starting that
could begin to offset those challenges in H2."
Wells Fargo is looking to the second half of this year as a
"turning point." Maintains
rating and $28-$30 range.
- Deutsche Bank called earnings quality poor and said free cash
flow of $300 million or so missed the firm's model of $1.9
billion. Further, Deutsche was bearish on HP's turnaround plan,
saying, "HP suggested a potential turnaround could take 3-5
years. Revamping the Services business will be the slowest as it
is poorly positioned (vs. ACN & IBM etc) and requires
investment in sales and services capability to move up the value
chain and compete more effectively. PC headwinds include weak
consumer demand/Tablet substitution, HDD issues for at least
another Q, share losses in EM /European exposure and more
formidable competition (DELL, Lenovo and AAPL)."
The firm adjusted some numbers: 2012 revs and EPS from $125.7
billion and $4.10 to $122.6 billion and $4.00, respectively.
Deutsche Bank maintains a
rating and $20 price target.
- Brean Murray Carret believes the main theme on HP's call was
that a turnaround would be a "multi-year" transition. HP said it
hoped revs would flatten by the beginning of fiscal 2013 and then
build toward the end of the year.
Brean said it almost felt like HP was girding for a restructuring
of some sort, identifying problem areas as its cost structure,
printing business, and its products & supply chain.
Firm maintains a
- Collins Stewart echoes much of what was said, but commented,
"Some have jumped on board the HP turn-around ship. We retain our
rating and need to see material progress in order to be more
positive. To compare HP & Dell, it was back in '06 when Dell
first realized it had issues & six years later, quarters are
still erratic. Meanwhile, IBM has done very well for the past few
years, but the company worked very hard through the 2001-2006
period to build a turnaround base. Our point is that even though
the shares are cheap, this turnaround could be years in the
making." The firm sees the turnaround as "multiple years in the
HP shares last traded at $27.29, down 5.7 percent from Wednesday's