Mediocre 4Q for H-P - Analyst Blog


Hewlett-Packard Company ( HPQ ) reported fourth quarter 2011 earnings per share ( EPS ) of $1.17, above the Zacks Consensus Estimate of $1.13. In the after market trade, the company's share price fell 2.27% due to lackluster revenue and weak sequential outlook.


Revenues declined 3.6% year over year to $32.1 billion. The company reported revenue growth across its Services and Software business segments, which was offset by declines in the Personal Systems Group (PSG), Networking and Printing segments.

In terms of different geographies, the Americas reported GAAP net revenue of $14.5 billion, down 4.0% year over year. Europe, the Middle East and Africa (EMEA) reported revenues of $11.7 billion, which fell 6.0% year over year.  However, revenues from the Asia Pacific were $6.0 billion, up 3.0% on a year-over-year basis.

Revenues generated outside the United States in the fourth quarter accounted for 65.0% of the total revenue. This apart, the BRIC countries (Brazil, Russia, India and China) generated revenues of $3.8 billion, up 9.0% year over year and accounted for 12.0% of the total revenue.

Segment Results

Enterprise Servers, Storage & Networking ( HEB ) reported revenues of $5.7 billion, down 3.9% from $5.8 billion in the year-ago quarter. Networking revenue was up 5.0%; while Industry Standard Servers revenue declined 4.0%. Business Critical Systems revenue plunged 23.0%, while Storage revenue grew 4.0%.

Personal Systems Group (PSG) revenues were $10.2 billion, down 1.6% year over year. This segment witnessed commercial client revenue growth of 5.0%, whereas, the consumer client revenue declined 9.0%. On the other hand, total units increased 2.0% with desktop units growth of 5.0% and notebook units growth of 1.0%.

Imaging and Printing Group ( IPG ) revenues were $6.3 billion, down 9.7% year over year. Commercial revenue spiked 4.0% year over year with commercial printer hardware units up 5.0%. Consumer printer hardware revenue decreased 8.0% year over year with an 8.0% decline in units.

HP Financial Services (HPFS) revenues were $952.0 million, up 17.7% year over year. This was attributed to double-digit growth in both lease volume and portfolio assets.

Operating Results

Gross margin in the quarter stood at 21.1%, compared with 24.9% in the year-ago period. Gross margin was impacted by strong yen and a lower mix of printing supplies, as well as continued margin pressure in Services.

Diluted earnings per share on a GAAP basis were 12 cents in the fourth quarter compared with 93 cents in the prior-year quarter. After adjusting for special items, non-GAAP net earnings per share was $1.17 compared with $1.10 in the prior-year quarter.

Balance Sheet, Cash Flow & Stock Repurchase

Hewlett-Packard generated $2.4 billion in cash from operations versus $3.2 billion in the previous quarter. The company ended the quarter with $8.0 billion in cash and cash equivalents versus $12.9 billion in the previous quarter. The company exited the quarter with a long-term debt balance of $22.5 billion, up from $19.0 billion in the previous quarter.


For the first quarter of fiscal 2012, the company expects non-GAAP diluted EPS in the range of 83 cents to 86 cents, while GAAP diluted EPS is projected in the range of 61 cents to 64 cents. Further, the company expects fiscal 2012 non-GAAP diluted EPS of $4.00 and GAAP diluted EPS of approximately $3.20.


As expected, computing major Hewlett-Packard reported mediocre fourth quarter results, with revenue declining on a year-over-year basis. However, earnings in the quarter surpassed our estimate. Moreover, the company's margins declined due to exchange rate fluctuations and continued margin pressure in the services division.

Moreover, the shortage of HDDs in the coming months, resulting from the recent flood in Thailand may hamper production. This is expected to negatively impact units, revenue and margins going forward, despite PC price increases. The expected upward revision in PC prices could compensate the margin impact but demand might take a hit.

We believe that CEO Meg Whitman has a tough job, especially as business growth of the company is also challenged due to the worsening external environment, including dull demand from Europe. She has to make strategic moves in order to improve the overall turnover of the company and manage cost efficiently to improve margins. Things look difficult in the short run, although HP has the ability to come out as a winner in the long run.

The company has a short term Zacks #5 Rank, indicating a short-term Strong Sell rating.

HEWLETT PACKARD ( HPQ ): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: EPS , HEB , HPQ , IPG

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