Compaq beats the Street
PC maker surpasses its reduced sales, profit estimates; analysts encouraged
NEW YORK (CNNfn) - Compaq Computer Corp. on Tuesday reported a fourth-quarter profit that beat the Street's lowered expectations and said it is comfortable with analysts' estimates for earnings growth in 2001.|
Excluding one-time items, Compaq earned $515 million, or 30 cents per share, during the quarter ended Dec. 31. That compares with a profit of 19 cents per share during the same period a year earlier and is 2 cents better than the 28 cents per share analysts surveyed by earnings tracker First Call had generally expected.
At $11.5 billion, Compaq's fourth-quarter revenue topped the Street's expectations of roughly $11.3 billion and came in above the high end of the company's recently revised guidance.
Compaq (CPQ: Research, Estimates) shares rose 23 cents to $20.05 ahead of the earnings news, which was released after the closing bell. They rose to $22.74 in after-hours trade.
Last month, Compaq warned the Street that weak sales at the end of the quarter would cause it to fall short of previous targets, which had been for a profit of 36 cents per share on $12.4 billion in revenue.
Looking ahead, Compaq expects difficult market conditions in the first half of the year but remains comfortable with the Street's earnings-per-share growth estimate of between 20 and 25 percent for 2001, according to Michael Capellas, the company's chairman and chief executive.
When Compaq revised its guidance last month, Capellas had pinned the blame for the shortfall in large part on weak consumer demand in the United States, particularly at the end of the quarter. That was a refrain that rang throughout the PC industry, as PC vendors one after the other confessed that their results, also, would come in shy of expectations.
In a teleconference with analysts Tuesday evening, Capellas said strong sales of Compaq's non-PC products, such as network servers and storage systems, as well as Compaq's services business, helped offset the weakness in the consumer PC market.
"Although we faced a downturn in consumer demand and a softer market for commercial PCs and low-end servers, our enterprise servers and storage business grew 20 percent overall," he said.
"If one thing stands out in the fourth-quarter results, it's the strength of our enterprise technology and solutions," Capellas added. "This is where we see our most important growth in 2001 and beyond."
Moving forward, Compaq's strategy will involve extending its services business beyond the traditonal PC and into the next generation of computing devices, such as handheld computers, Capellas told CNN's Moneyline. (447K WAV) or (447K AIFF)
Combined, Compaq's server, storage and services businesses accounted for 90 percent of its operating profit, Capellas said. Meanwhile, its consumer PC segment posted an operating loss of $6 million, compared with a $69 million profit a year earlier.
Even so, some analysts were encouraged by Compaq's confidence, considering the difficult environment in which PC vendors are operating.
"The company seems to be standing behind its outlook that it can grow earnings per share 20-to-25 percent for 2001," said Jim Meyer, an analyst at Janney Montgomery Scott. "You can't ask for more in this environment."
"Despite the fact that December fell off a cliff and January appears weak as well, the company is more than holding its own," Meyer added.
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Jesse Greene, Compaq's chief financial officer, told analysts to expect the company to log first-quarter sales of $9.6 billion and operating earnings of 21 cents per share.
That's a penny more than the 20 cents per share profit they had expected the company to report for the quarter, and a lower revenue figure than some had anticipated. Merrill Lynch analyst Steve Fortuna, for example, had most recently pegged a first-quarter revenue estimate of roughly $10.2 billion.
For all of 2001, Greene said Compaq is expecting revenue growth between 6 percent and 8 percent. That's down slightly from the 9 percent annual revenue growth analysts had expected Compaq to record in 2001, according to the First Call survey.
Compaq's fourth-quarter earnings results exclude the impact of one-time charges, including a $1.8 billion charge for the write-off of investments, principally from the decline in value of its stake in Internet investment company CMGI (CMGI: Research, Estimates).
Including those charges, Compaq reported a fourth-quarter net loss of $672 million, or 39 cents per share.
For all of 2000, Compaq logged revenue of $42.4 billion, an increase of 10 percent over the prior year.
Operating income for the year was $1.7 billion, up more than three-fold over the prior year. Accounting for one-time items, net income for the full year was flat with last year at $569 million, or 33 cents per share, Compaq said.
-- Reuters contributed to this report