HP shines as earnings, sales surge
PC and printer giant beats Street's expectations again, lifts earnings guidance for 4Q and sets $6B buyback. Stock soars.
By Rob Kelley, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) -- Hewlett-Packard reported higher quarterly sales and earnings that beat analysts' expectations Wednesday, continuing a perfect string of positive earnings surprises since CEO Mark Hurd took over in early 2005.

Shares of HP (Charts) surged more than 6.5 percent in early morning trading on the New York Stock Exchange Thursday and hit a new 52-week high..

World's largest makers of printers and PCs said sales were $21.9 billion in its fiscal third quarter, compared to $20.8 billion a year ago.
World's largest makers of printers and PCs said sales were $21.9 billion in its fiscal third quarter, compared to $20.8 billion a year ago.

HP, one of the world's largest makers of printers and PCs, said sales were $21.9 billion in its fiscal third quarter, compared to $20.8 billion a year ago, a 5 percent increase. Analysts were expecting revenues of $21.8 billion.

The company reported a profit of $1.5 billion, or 48 cents per share. Excluding one-time items, HP reported earnings of 52 cents per share, up 44 percent from the year-ago period. On this basis, analysts were expecting 47 cents per share, according to Thomson First Call.

One analyst said the numbers, while good, were not fantastic and that HP may have difficulty continuing to grow unless it purchases more companies. HP announced last month that it was buying software firm Mercury Interactive.

"At the end of the day, this is a 5 percent growth company. The only way they can achieve better growth numbers is through acquisitions," said Shaw Wu, an analyst with American Technology Research who has a "hold" rating on the company.

But another analyst said that the strong numbers showed Hurd's consistency and the strength of his approach.

"Mark Hurd has brought boring back to HP - and I mean that in the best way possible," said Dan Renouard an analyst with Robert W. Baird. "They posted another solid quarter, with good gains across their divisions. They aren't hitting home runs, but a bunch of singles and doubles."

He said that he believes Hurd is changing the values of HP toward greater productivity, and there will be more efficiency gains in coming years.

"In our view, there's still a lot of potential to wring more efficiency out of this model," he told CNNMoney.com.

HP also issued sales guidance for its fourth quarter that was roughly in line with what Wall Street is expecting, at $24.1 billion.

If HP hits that target, it would finish its fiscal year with $91.2 billion in sales, putting the company in position to surpass IBM (Charts) for the first time as the largest tech company as measured by annual revenue. Analysts expect IBM to report sales of $89.9 billion in 2006.

The company's earnings guidance was better than Wall Street's forecast. HP said it expects earnings to be in a range of 61 cents to 63 cents per share, excluding one-time items. Analysts' consensus estimates were for a profit of 59 cents per share.

"HP delivered another solid quarter with strong revenue growth, improved margins and healthy cash flow," said Hurd in a statement. "We gained share without sacrificing margins and continue to execute well against our long-term plan. This is visible in our third quarter results and improved fourth quarter outlook."

Looking at individual businesses, sales in HP's personal computer group grew 8 percent year-over-year to $6.9 billion, with strong notebook revenue driving results.

HP continues to gain ground against No. 1 PC maker Dell (Charts) in the hyper-competitive personal computer market.

Dell has been struggling as of late and experienced another bout of bad news on Monday when it was revealed that batteries in its notebook computers could spontaneously catch on fire. The company announced a recall of 4.1 million batteries. (Full story)

Dell will report its fiscal second-quarter results on Thursday after market close. The company already warned last month that sales and earnings would be below expectations.

HP's printing division also had a strong quarter, with sales growing 5 percent to $6.2 billion. The company said printer unit shipments increased 15 percent year-over-year.

Revenue growth in two other big businesses was a bit more sluggish. Sales of servers rose 3 percent to $4.1 billion, while sales from the company's services division increased 1 percent to $3.9 billion.

Looking forward, HP has suggested that software and services are two areas where it could attain high-margin growth.

"The markets where we can get long-term margin expansion is where you'll see us investing," Hurd said during the earnings call.

HP is in the midst of a major restructuring program, with an emphasis on cost-cutting. The company announced last year that it would lay off 14,500 workers - or 10 percent of HP's workforce. Hurd told investors that the company laid off 1,900 more workers in the third quarter, bringing the total number of employees let go to 10,000.

One of the company's biggest concerns is getting better margins in competitive markets, which the restructuring plan is intended to address.

"Our gross margins improved in all segments this quarter, showing improved efficiency," Hurd told investors on the call.

The company also announced a $6 billion stock buyback program. Investors usually like news about share repurchases since buybacks help to boost earnings.


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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.