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HP's profit slides
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August 16, 2001: 6:22 p.m. ET
Computer maker logs 6 cents per share, down 88 percent from last year
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NEW YORK (CNNfn) - Hewlett-Packard on Thursday reported a fiscal third-quarter operating profit that fell sharply from the same period a year ago as a slowdown in global technology spending and a harsh pricing environment weighed heavily on the company's bottom line.
And executives of the world's second-largest computer hardware supplier said they see few signs of improvement in the current quarter and expect sales and profits to fall under continued pressure.
"The slowdown has clearly become global in scope, and visibility is still very limited," Robert Wayman, HP's chief financial officer, told analysts during a teleconference Thursday evening.
After the close of trading, HP reported net earnings of $111 million, or 6 cents per share, for the quarter ended July 31. That's down 88 percent from the profit of $1.1 billion, or 51 cents per share, it reported in the same quarter a year ago.
HP also reported pro forma earnings, which exclude amortization of goodwill and other items, of 11 cents per share for the most recent quarter. First Call had pegged an analysts' consensus estimate of 4 cents per share for the quarter, though the firm, which specializes in tracking corporate profits and revenue, could not say on Thursday which was the comparable number.
At $10.1 billion, HP's fiscal third-quarter revenue fell 14.4 percent from $11.8 billion in the year-ago quarter.
Executives of HP (HWP: Research, Estimates) have lowered their financial targets several times during the quarter, most recently on July 26 when they told the Street to expect revenue ranging between $9.9 billion and $10.2 billion.
It was the sixth such warning the company has made so far this year, and the third time it lowered expectations for the most recent quarter. Analysts generally had expected revenue of $11.1 billion prior to the warning.
In addition to the revenue and profit shortfall, which executives blamed on continued global economic weakness, HP announced plans to cut about 6,000 jobs worldwide, about 6 percent of its work force. The company has said it expects the layoffs to result in annual savings of about $500 million.
HP on Thursday said it expects to take a restructuring charge in the range of $250 million-to-$300 million, and the majority of the employees being fired will leave the company by the end of October.
"We are managing through what is clearly a significant global economic downturn, and our results reflect this tough environment," said Carly Fiorina, HP's chairman and CEO. "However, we are seeing positive signs that our efforts to transform our business and improve our execution are gaining traction, and we continue to make strategic moves to fuel growth."
Looking ahead, Wayman said he expects revenue in the current quarter to rise modestly above the third-quarter's level. But on a year-over-year basis, the company's top line could show an even larger percentage decline than the third quarter's 14 percent drop.
During the third quarter, HP's gross margin, the percentage of sales remaining after subtracting product costs, was 25.9 percent, compared with 26.7 percent in the second quarter. While that was slightly better than executives said they had expected when they warned on July 26, it was "still well below acceptable levels," Wayman said.
Meanwhile, he said he expects margins to continue to be pressured as long as the economy remains weak.
"While we expect gross margins to improve from current levels when the economy turns around, I wouldn't assume margin expansion in [the fourth quarter]," he said.
The company did not provide a specific per-share earnings forecast for the fourth quarter. Analysts most recently had been expecting a profit of 15 cents per share, by First Call's count.
During the third quarter, HP said its consumer business was particularly hard hit, with revenue down 21 percent from the same quarter last year.
HP said overall revenue in its business sector declined 11 percent from last year. However, the company said sales of its high-end Superdome Unix servers, which have been sluggish since it rolled the new product out last September, rose during the quarter. 
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