) reported second quarter 2012 earnings per share (EPS) of 98
cents, beating the Zacks Consensus Estimate of 91 cents. Also, the
quarter's result came above the company's guidance range of 88
cents to 91 cents. Despite a weak year-over-year comparison, shares
jumped roughly 11.0% in the after-hours. Apart from the guidance
beat, the main driver of the shares remained the news of a major
restructuring as announced by the H-P chief Meg Whitman. Per the
announcement, H-P will reduce its headcount by 27,000 through 2014
and save costs of $3.0-$3.5 billion annually.
Revenues declined 3.0% year over year to $30.7 billion,
attributed mainly to lackluster performance from PSG, IPG and ESSN
segments. Presently, the company is trying to normalize excess
channel inventory in the PSG and ESSN segments that was piled up
for a hard disk drive supply disruption.
Region wise, revenue in Americas was $13.8 billion, flat year
over year. EMEA revenue declined 7.0% year over year to $10.9
billion, while revenue from the Asia Pacific revenue inched down
1.0% year over year to $6 billion. The company faces continued
macroeconomic challenges in EMEA while the Chinese business
improved compared to the year ago period.
Enterprise Servers, Storage & Networking
reported revenues of $5.2 billion, down 5.5% from $5.5 billion in
the year-ago quarter. The revenue of this segment was mainly
affected by the hard disk drive shortages.
Personal Systems Group
revenues were $9.45 billion, down 0.4% year over year. Within this
segment, the company witnessed a recovery in the desktop and the
commercial segment, but consumer notebook demand remained typically
Imaging and Printing Group
revenues were $6.1 billion, down 10.0% year over year. Commercial
hardware revenue dipped 3.7% on a year-over-year basis. Consumer
hardware revenue was down 14.7% from the year-ago quarter.
HP Financial Services
revenues were $968.0 million, up 9.4% year over year. This was
driven by an 8.0% increase in net portfolio assets and flat
Gross margin in the quarter stood at 23.1% compared with 24.7%
in the year-ago quarter. Gross margin was impacted by the strong
yen, lower mix of supply, continued margin pressure in services and
competitive pricing in its hardware businesses.
Diluted earnings per share on a GAAP basis were 80 cents in the
reported quarter compared with $1.05 in the prior-year quarter.
After adjusting for special items, non-GAAP net earnings per share
were 98 cents compared with $1.24 in the prior-year quarter.
Balance Sheet, Cash Flow & Stock
Hewlett-Packard generated $2.5 billion in cash from operations
versus $1.2 billion in the previous quarter. The company ended the
quarter with $8.3 billion in cash and cash equivalents versus $8.1
billion in the previous quarter. The company exited the quarter
with a long-term debt balance of $25.8 billion, slightly up from
$25.5 billion in the previous quarter.
The company expects non-GAAP diluted EPS in the range of 94
cents to 97 cents, and GAAP diluted EPS in the range of break-even
to 3 cents for the third quarter of 2012.
For full year 2012, HP estimates non-GAAP diluted EPS to be in
the range of $4.05 to $4.10, while the GAAP diluted EPS to be in
the range of $2.25 to $2.30.
Again, the cash generated by the restructuring mentioned above
will be reinvested back into the company. This will help the
company to investment in people, processes and technology, which is
expected to help HP to accomplish the restructuring effort and to
generate the savings.
Computing major Hewlett-Packard reported mixed second quarter
2012 results, with EPS exceeding our estimate, but revenue
declining on a year-over-year basis. The company exhibited mediocre
operating performance due to exchange rate fluctuations, greater
mix of low margin products and competitive pricing in its hardware
Further, the company's third quarter guidance is lower than the
Zacks Consensus Estimate of 95 cents. Moreover, to bring down its
cost, the company is laying off 27000 employees, which is around
8.0% of its workforce. The savings are expected to be invested in
newer people, process and technology.
This apart, the company is facing significant competition in the
printing space given the continuous roll out of printing devices at
competitive prices by other technology giants like
). This has resulted in reduction of business volume and margin
Further, the company is trying to cope up with the worsening
economic conditions in its international markets, including dull
demand from Europe. Moreover, it will take some time for demand to
pick up as the companies are delaying their decision to replace
their old PCs.
The shares carry a Zacks #4 Rank, indicating a short-term Sell
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