Compaq beats estimate
PC maker posts highest revenue figure in its history, up 22% from year ago
NEW YORK (CNNfn) - Compaq Computer Corp. on Tuesday reported a third-quarter operating profit of 30 cents per share, exceeding Wall Street's expectations as sales rose 22 percent from the same period last year.|
And executives at Compaq, the world's leading supplier of personal computers, said the company remains in a strong revenue position moving into the fourth quarter, but they noted that weakening currency in Europe will trim a few cents off its bottom line.
Excluding gains from investments, Compaq said it earned $525 million, or 30 cents per share, during the quarter ended Sept. 30. That compares with a profit of 7 cents per share during the same period last year and is a penny more than the 29 cents-per-share profit analysts polled by earnings tracker First Call had expected Compaq to report for the quarter.
Including investment income of $25 million, Compaq's net income for the quarter was $550 million, or 31 cents per share.
Meanwhile, Compaq's revenue came in much higher than expected. The company said sales rose 22 percent to $11.2 billion.
When Compaq reported its second-quarter results, executives said they were "comfortable" with Wall Street's third-quarter revenue estimates of $10.8 billion and promised "strong double-digit revenue growth" in the second half of the year.
Prior to the earnings news Tuesday, which was released after the close of trading, Credit Suisse First Boston analyst Kevin McCarthy said he had expected Compaq to report total sales "in line with the lower end of the Street revenue range of $9.65-$9.85 billion."
Compaq (CPQ: Research, Estimates) shares fell 70 cents to $27 in regular trading ahead of the news. They fell to $26.80 in after-hours trading.
"Our results clearly demonstrate our tremendous momentum in the marketplace," Michael Capellas, Compaq's chairman and chief executive, said in a teleconference Tuesday evening. "Our revenue was the highest in Compaq's history."
The company reported revenue growth in all regions, with Asia-Pacific and Japan posting the strongest gains, at 41 percent and 52 percent, respectively.
Meanwhile, Europe, which Capellas said represents roughly one-third of Compaq's total revenue, grew a more modest 8 percent. If not for the effect of a weaker euro, he said Compaq would have posted European sales-growth of 21 percent in the quarter.
A weaker euro reduces the value of American-based company's sales when they are translated into dollars.
Looking ahead, Jesse Greene, Compaq's chief financial officer, told analysts to expect the company to post strong revenue growth in the fourth quarter, anticipating an 18 percent increase from last year to roughly $12.4 billion.
However, he trimmed the company's earnings-per-share forecast for the fourth quarter to 37 cents per share from 41 cents per share, citing looming weakness in Europe.
"Early in the quarter, we started a hedging program we believe constructively limits our fourth quarter exposure to $100 million of pretax earnings," Greene said. "The entire adjustment in the fourth quarter is because of currency."
The European market has been a sore spot for several technology outfits recently. Intel, the leading supplier of PC microprocessors, blamed a slowdown in Europe for a revenue shortfall during its latest quarter. Dell Computer also cited weakness in Europe for lighter-than-expected revenue during the latter part of the calendar year.
In 2001, Capellas said Compaq is targeting total revenue growth of 12-14 percent and is "comfortable" with the current consensus earnings estimate of $1.49 per share.
Consumer PC sales continued strongly in the third quarter, representing $2.1 billion in revenue, an increase of 45 percent over the prior-year period, Compaq said. However, consumer PC operating income was $63 million, a decrease of 3 percent from last year's third quarter.
Commercial PC sales totaled $3.5 billion, up 28 percent year-over-year. Commercial PC operating income was $133 million, an increase of $302 million from the same period last year when it posted a loss.
Compaq's revenue from services continued to decline. At $1.7 billion, that unit's sales fell 2 percent from last year's third quarter. Operating income was $254 million, down 16 percent from a year ago.
During the second quarter, Compaq reported that its services revenue fell 4 percent to $1.7 billion while operating income declined $36 million to $228 million.
Sales of network servers rose 19 percent during the third quarter, totaling $3.8 billion. Operating income from servers was $597 million, up $302 million from last year.