HP earnings surge on strong PC, printer sales

NEW YORK (CNNMoney.com) -- Hewlett-Packard reported a sharply higher quarterly profit Tuesday, thanks to strong computer and printer sales during the holidays, as the tech giant continues to gain momentum against struggling rival Dell.

HP's net income rose to $1.5 billion in the fiscal first quarter of 2007, or 55 cents a share, up 26 percent from $1.2 billion, or 42 cents a year ago.

Hewlett-Packard reported better-than-expected quarterly earnings Monday, helped by sales of its PCs and laptops.

Excluding certain charges, the Palo Alto, Calif.-based firm reported earnings per share of 65 cents. Wall Street had expected the top PC-maker to report 62 cents a share on that basis.

Quarterly revenue rose 11 percent to $25.1 billion during the quarter, from $22.6 billion a year ago, the company said. Analysts were anticipating the company to report $24.3 billion in sales during the quarter.

"I'm pleased with the first-quarter results that we had," Mark Hurd, HP chairman and chief executive officer, said in a conference call with analysts following the release of company earnings.

HP's results were boosted by strong improvement in its PC and notebook division. Sales in the division increased 17 percent from a year ago. Operating profit margins in that unit, which measure income as a percentage of sales, climbed to 4.7 percent from 3.9 percent a year ago.

HP has managed to remain the leading PC manufacturer after stealing the top spot from rival Dell (Charts) last year.

Sales in the company's printing and imaging division, known for being its most profitable, were also a bright spot for HP, climbing 7 percent to $7 billion over the past year. The unit's operating margins climbed to 15.3 percent from 14.9 percent a year ago.

HP (Charts) shares fell more than 1 percent in after-hours trading on the news, after finishing up almost 1 percent higher in regular trade on the New York Stock Exchange.

Shaw Wu, an analyst with American Technology Research, said HP delivered a solid quarter but blamed the stock's decline on a decline in gross margins, a key measure of profitability after subtracting out the cost of sales, from the previous quarter.

It appears that strength in the PC division hurt overall margins at the company since the PC division is less profitable than other units, such as printing, services and software.

"The reason they (gross margins) were down so much is because the PC business came in a lot stronger," said Wu. "What that tells me is that they gained a lot of share against Dell in the quarter."

Hurd and HP's Chief Financial Officer Catherine Lesjak said the recent launch of Microsoft's (Charts) Vista operating system, which is expected to drive sales of most PC-makers, would be not felt until the second quarter. Even so, the two said it was too early to tell what kind of an impact it might have on sales.

The company also said it is modifying its pension plan, which would provide the company with a one-time gain of roughly $500 million. That gain, however, would offset the cost of an early retirement program, which would be offered to certain employees.

Looking ahead, HP expects second-quarter earnings per share, excluding certain items, to be in the range of 63 cents to 64 cents a share, mostly in-line with Wall Street estimates. The company also said it expects revenue to climb to $24.5 billion during the quarter, ahead of forecasts.

For the full year, the company expects earnings per share to be in the range of of $2.60 to $2.65 a share, versus consensus estimates of $2.57 a share.

Annual revenue should also beat expectations, the company said, with the company giving a range of $98.0 billion to $99.0 billion. Analysts had been expecting sales for the full fiscal year, which ends in October, to come in at $97.4 billion.

Hurd stressed during the conference call that the company needed to remain focused on improvement, particularly in terms of cost-cutting, future technology and inventory management.

"As pleased as I am with our progress, there are opportunities for further improvement ahead," Hurd said. "The good news is we're not confused about what we need to do."

HP's most recent results and outlook suggest that the company has had no difficulty surmounting the boardroom leak scandal that erupted last fall.

HP disclosed in September that it spied on board members and journalists during a leak investigation. The scandal ultimately led to the dismissal of then-Chairman Patricia Dunn, who allegedly initiated the investigation into the leak, and several other HP employees.

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