Hewlett-Packard’s Turnaround Still Many Quarters Away

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Hewlett-Packard (HPQ) reported disappointing fiscal first-quarter 2012 results as the company continues to struggle to right the ship. Though the turnaround is still many a quarter away, we are sticking with our fair value estimate for the world’s No. 3 personal computer maker at this time.

Hewlett-Packard’s fiscal first-quarter revenue fell 7% (8% after adjusting for currency) from the same period a year ago, while the company’s GAAP diluted earnings per share dropped nearly 40%, to $0.73. Though this came in better than the firm’s previously-provided bottom-line outlook of $0.61 to $0.64 per share, we think expectations had been lowered to the point where an earnings beat had been completely expected. On a non-GAAP basis, earnings per share came in at $0.92 per share, down 32% from the prior-year period. The company suffered nearly a 4 percentage-point decline in its operating margin in the quarter, which exacerbated the revenue fall, pushing earnings considerably lower.  

In the Americas, adjusted revenue fell 8%, while adjusted sales in Europe, the Middle East and Africa dropped 5%. Revenue in its Asia Pacific region declined 12% after adjusting for currency. Performance in the firm’s Personal Systems Group was particularly poor, as revenue dropped 15% on a year-over-year basis on the heels of 18% fewer units. The firm’s higher-margin Imaging and Printing Group and Enterprise Servers, Storage and Networking segment also experienced declines in sales during the period to the tune of 7% and 10%, respectively. Demand for its software, however, continues to expand, largely bolstered by acquisitive activity.

Looking ahead, Hewlett-Packard estimates that non-GAAP earnings per share will come in between $0.88 to $0.91 per share. The firm reiterated its full-year outlook of at least $4 per share in non-GAAP earnings, a level we think will be beat handily by the company.