HP profit climbs, tops estimates

Fourth-quarter earnings, sales soar on gains across all sectors; forecast upbeat. Shares dip after-hours.

By Grace Wong, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) -- Computer products maker Hewlett-Packard reported quarterly profit and revenue ahead of Wall Street's estimates Thursday, and offered a robust outlook for the current period.

HP's net income rose to $1.7 billion in the fiscal fourth quarter ended Oct. 31, up four-fold from the year-earlier period when the company took a hefty restructuring charge.

HP shares (green) have outperformed competitors IBM (blue) and Dell (yellow) in 2006.

Excluding charges related to restructuring but including stock-based compensation expenses, earnings per share climbed 33 percent to 68 cents a share.

Analysts had expected the Palo Alto, Calif.-based company's earnings to rise to 64 cents a share on that basis.

The company said sales rose 7 percent to $24.6 billion during the quarter. That was slightly above Wall Street's estimates of revenue of $24.1 billion.

But shares of Dow component HP, which have gained 10 percent since September and more than 40 percent this year, slipped about 0.5 percent in after-hours trading following the report.

In addition to the strong results and guidance, the company disclosed in an after-hours filing that the Securities and Exchange Commission has begun a formal investigation of it boardroom leak probe. It also disclosed the Federal Communications Commission is also joining the investigation that includes state and federal prosecutors in addition to the SEC.

But whether the after-hours selling was due to profit taking after recent gains for the stock or concerns that the new probes will distract management was unclear since there was little but good news in quarterly results.

HP also regained the position of No. 1 PC vendor from rival Dell during the calendar third quarter.

"HP delivered its best quarter in a number of years," CEO Mark Hurd said during a conference call, adding that the results were balanced across geographic region and business segments.

HP has steadily grown its earnings under Hurd, who has aggressively cut costs since he took over in April 2005.

The company has benefited from the troubles hounding Dell, which also was due to report earnings Thursday but delayed its results due to an ongoing Securities and Exchange Commission investigation into its accounting practices.

Upbeat outlook

Looking ahead, HP expects revenue of $24.1 billion to $24.3 billion for the current period, exceeding forecasts for sales of $23.9 billion.

Earnings per share, excluding certain items but including stock-based compensation expenses, are expected to range from 60 cents to 62 cents, in line with analysts' expectations for EPS of 60 cents.

HP expects fiscal 2007 revenue to rise to $97 billion, ahead of estimates for full-year sales of $96 billion.

Hurd said it's unclear what impact the launch of Microsoft (Charts) Vista will have on the holiday season and HP in the near term.

But he said the long-term impact of the new operating system would be positive. "Long term, we feel good about it."

Vista, the first update to the Windows operating system in five years, is due to ship to businesses at the end of this month and to consumers in January.

HP said overall sales in its personal systems group rose 10 percent to $7.8 billion during the fourth quarter. The company said notebook revenue surged 24 percent from the year-earlier period, while desktop sales were flat.

Sales from HP's core printing division rose 7 percent to $7.3 billion. Revenue from storage and servers grew 4 percent to $4.7 billion and sales from services rose 5 percent to $4.1 billion. Software revenue climbed 14 percent to $349 million.

During a call with journalists, Hurd said HP is still working on filling its empty board seats and that the company is trying to get "the best board we possibly can."

In September, the legendary computer maker revealed it spied on board members and journalists during a leak investigation, creating an uproar over its corporate ethics and sparking an investigation by federal and state authorities.

On Wednesday, former chairman Patricia Dunn pleaded not guilty to felony and conspiracy charges filed by the California attorney general's office.

Dunn stepped down from her posts amid the scandal that erupted during her watch. Board members Thomas Perkins and George Keyworth also quit over the flap.

Despite the scandal, HP (Charts) shares have climbed to a six-year high. The stock has also outperformed rivals Dell (Charts) and IBM (Charts) this year.

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