HP raises forecast despite revenue drop

PC-maker to drive profits through cost cuts as desktop and laptop sales fall

 

PC-maker Hewlett-Packard rose after forecasting fiscal third-quarter profit that topped analysts’ estimates on cost cuts aimed at countering slumping demand for desktops and laptops.

Earnings excluding some items will be 84 cents to 87 cents a share in the period through July, Hewlett-Packard said in a statement, topping analysts’ average estimate for 83 cents, according to Bloomberg. Shares surged as much as 14 per cent in extended trading.

Chief executive Meg Whitman is eliminating 29,000 jobs through the end of 2014 to save as much as $3.5 billion a year and shore up profitability as PC demand ebbs.

Fiscal second-quarter revenue declined 10 per cent to $27.6 billion, shy of $28 billion projected by analysts. Sales declined across all of Hewlett-Packard’s divisions.

“We need to do a better job growing the top line,” Ms Whitman said on a conference call. “We have a shot at growth in 2014, but there’s no question there are headwinds.”

At a meeting with investors last October, Ms Whitman said next year would be one of “recovery and expansion.”

Hewlett-Packard has gained 49 per cent this year, compared with a 16 per cent increase in the Standard and Poor’s 500 Index.

In another indication that lower costs are bolstering earnings, second-quarter profit excluding certain items was 87 cents a share, compared with 81 cents predicted by analysts.

Operating cash flow increased 44 per cent to $3.6 billion and free cash flow almost doubled as capital expenditures fell.

“HP has value investors, and value investors care about cash flow,” Hewlett-Packard chief financial officer Cathie Lesjak said in an interview.

Sales at the division that includes PCs tumbled 20 per cent to $7.58 billion last quarter, adding to evidence that Hewlett-Packard is getting little relief from last year’s unveiling of Microsoft latest Windows software.

PC shipments plummeted 14 per cent in the first quarter, the worst decline since researcher IDC began tracking data in 1994. Dell, which is seeking to go private in a $24.4 billion deal, has been cutting PC prices to win market share, and has gained ground from Hewlett-Packard in servers.

Bloomberg