Posted on: Thursday, February 17, 2005
Hewlett-Packard quarterly profits flat
By Rachel Konrad
Associated Press
SAN JOSE, Calif. — A week after firing its top executive, Hewlett-Packard Co. reported quarterly earnings that were essentially flat, and its interim chief executive acknowledged, "There is work to be done."
For the three months ended Jan. 31, HP reported a profit of $943 million, or 32 cents per share, only 0.7 percent higher than the $936 million, or 30 cents per share, it earned in the first fiscal quarter of 2004.
Excluding special items, including at least $115 million to settle patent litigation with Intergraph Corp., HP would have earned 37 cents per share, compared with 35 cents per share in the same period a year earlier.
Quarterly revenue was a record $21.5 billion, up 10 percent from $19.5 billion in the same quarter a year ago. But when adjusted for currency fluctuations around the world, revenue increased only 5 percent from a year ago, said interim CEO Robert Wayman.
HP's quarterly performance beat expectations of analysts polled by Thomson First Call, who forecast Palo Alto, Calif.-based HP would earn 34 cents per share on sales of nearly $21 billion.
HP shares closed yesterday at $21.06, down 6 cents on the New York Stock Exchange. In extended trading, the shares gained 72 cents, or 3.4 percent, after the report was released.
Yesterday's earnings came one week after HP's board ousted Chairman and Chief Executive Carly Fiorina for failing to slash costs and boost sales quickly enough.
Stock rated 'hold'
In recent months, Fiorina — one of the country's most powerful women executives — became the target of intensifying criticism for her ambitious diversification strategy. Through the 2002 acquisition of Compaq Computer Corp., she attempted to change HP from a marginal company that focused on printers and ink into a Silicon Valley consulting and computing powerhouse.
Despite her efforts, ink and printers continue to drive revenue. The "imaging" division reported first-quarter sales of $12.9 billion, up 7 percent from the same period of 2004.
Given the sharply declining profit margins of printers and other low-end hardware, some Wall Street analysts have been suggesting shareholders might be better off if HP were split into two or more pieces.
Most analysts polled by Thomson First Call continued to rate HP stock a "hold," and share performance lags that of HP's fiercest rivals: Dell Inc., one of the world's most efficient retailers, and IBM Corp., the leader in technology consulting services — a lucrative niche HP is trying to penetrate.
Wayman, who also is HP's chief financial officer, would not discuss succession — only quarterly results, which he called "solid." He was particularly pleased with a record $3.8 billion in revenue from consulting contracts, an increase of 20 percent from the same quarter a year ago.
But he acknowledged that the company was under pressure to perform better. He said revenue for the upcoming quarter, which ends in April, would be at least $21.2 billion, similar to Wall Street's expectations.
He also said the company would continue to slash expenses.
Cutting costs The company reduced research and development costs to $878 million in the first quarter from $889 million in the same quarter of 2004 — a risky move for any company in the fiercely competitive technology sector. "General and administrative" costs — which include expenses such as legal fees and consultants — swelled to $2.7 billion, up from $2.58 billion in the same period last year.
Wayman wouldn't say how many people would be laid off this year at HP, which ended 2004 with roughly 150,000 employees. But the company spent roughly $60 million in the fiscal first quarter on work force reduction plans, and it plans to spend as much as $140 million more in the current quarter.
"While we continue to make progress in growing our top line, there is work to be done to improve our profitability," he said.
