Hewlett-Packard Profit Beats Forecasts by a Penny

Hewlett-Packard's headquarters in Palo Alto, California.
Hewlett-Packard's headquarters in Palo Alto, California.

Hewlett-Packard reported underlying quarterly profit growth of 27% Wednesday, lifted by broad cost cutting and strength in its personal computer and printer businesses.

Revenue for HP's fiscal second quarter rose 13% to $25.5 billion, and shares of the world's biggest maker of PCs and printers rose slightly in extended trade.

Chief Executive Mark Hurd, who has led a turnaround at the company since his arrival just over two years ago, said the revenue growth was its strongest since 2000 and HP continued to gain market share in a number of markets.

"PCs and servers, as expected, were leading the charge," said Brent Bracelin, an analyst at Pacific Crest Securities.

Net income was $1.78 billion, or 65 cents per share, compared with the year-ago quarter's $1.90 billion, or 66 cents per share, including a tax settlement gain of 15 cents.

Excluding items, HP had a per-share profit of 70 cents in the just-reported quarter. Analysts polled by Thomson First Call expected earnings of 69 cents a share.

HP last week lifted its prior profit forecast, following the inadvertent disclosure of financial data via e-mail to a single outside party. It said May 8 it expected to report net earnings per share of 64 cents to 65 cents, and a profit before items of 69 cents to 70 cents.

HP also left its revenue forecast unchanged and slightly narrowed its forecast for earnings per share before items for the third quarter. HP also said last week third-quarter results would top Wall Street estimates at the time.

HP still expects third-quarter revenue of $23.7 billion to $23.9 billion, and it narrowed its forecast for third-quarter earnings per share to 64 cents to 65 cents, from a prior range of 63 cents to 65 cents.

HP has been taking market share from longtime rival Dell, which has stumbled in recent quarters. Dell lost market share to HP in the fourth quarter and in January. HP's chief rival, IBM, last month reported an 8% rise in quarterly profit, helped by higher sales of software and computer services.

"This company appears to be on the right track right now with very little in terms of weakness," Rob Enderle, principal analyst at Enderle Group, told CNBC.

More Cost-Cutting

As he often does, Hurd said that, while the company has cut costs considerably, there is still more work to be done.

"We will take out more overhead costs in 2007, '8 and '9 than we did in 2005 and 2006," Hurd told reporters on a conference call. "We're doing better but we can do better than we're doing today."

Revenue in HP's personal systems group, which includes PCs, rose 24% to $8.7 billion and operating profit was $417 million, or 4.8% of revenue, up from 3.6% a year ago.

In its imaging and printing group -- where HP earns a good deal of its operating profit -- revenue rose 6% to $7.2 billion. Operating profit was $1.2 billion, or 16.3% of revenue, up from 15.5% a year ago. HP has long said its goal is operating margins for the group of about 15%.

Enterprise storage and server revenue climbed 8% to $4.6 billion and operating profit was $407 million, or 8.8% of revenue, up from 7.5% a year earlier.

HP's services business saw revenue climb 7% to $4.1 billion and operating profit was $459 million, or 11.1% of revenue, up from 8.9% a year ago.

HP's software business grew 58% to $523 million, led by strong growth from Mercury Interactive, which HP purchased last November. Operating profit was $42 million, or 8% of revenue, up from 0.9% of revenue a year ago.

HP shares rose 46 cents to close at $45.21. In extended trade after the results, they ticked higher to $45.49.

Shares of HP trade at 14.7 times forecast earnings per share for its fiscal year ending October 2008, compared with 17.2 times Dell's forecast earnings for its fiscal year to January 2009, and IBM trades at 13.8 times its forecast earnings per share for its year ending December 2008.