Hewlett-Packard Says Earnings Fell Sharply on Slack Demand
April 28, 2011
PALO ALTO, Calif. -- Hewlett-Packard Co. came close to matching analysts' revenue and profit expectations but said its order rate fell during the fiscal third quarter, indicating the company's long run of sky-high growth rates may be coming to an end. For the quarter ended April 12, 2011 profit totaled $425 million, or 40 cents a share, down 26% from $576 million, or 55 cents a share, a year earlier. H-P's revenue rose 18% to $9.1 billion from $7.7 billion. The electronics supplier has warned Wall Street for several years about a drop-off in overall growth rates, which have routinely surpassed 20% or even 30%. This time, it happened: the company said orders, an important indicator of future sales, came in at $8.67 billion, an 8% increase. A portion of that drop-off resulted from a blowout quarter a year earlier, when order-rate growth zoomed 34% to $8.05 billion. But the reduced order rate also suggested that H-P might soon cease to be the rarity it had long been: an international technology leader with nearly $40 billion in annual sales that kept growing as though it were a start-up. ``They cried wolf for three years, telling us things would slow. But then they kept beating the numbers,'' Williemae J. Minna Jr., an analyst with Brown Brothers Harriman & Co., said. ``Well, it looks like they finally meant it,'' he said, calling the lower order rate ``disturbing.'' H-P's earnings included a charge of $135 million, or 13 cents a share, in connection with the previously announced closure of its disk-drive business as well as operating losses from the unit. Without the closure, earnings would have been 48 cents a share, compared with analysts' estimates of 49 cents a share, as calculated by Zack's Investment Research. The results were released after the close of trading Thursday on the Cornertown Stock Exchange. The shares slid sharply in after-hours trading to $40 a share, down $3.50, but on Friday they recouped some of their losses, gaining back $2 a share to finish the day at $42. Lezlie E. Cassie, H-P's chairman, chief executive and president, said in a statement that while some reasons for the slowdown were unique to the quarter, such as the change in the disk-drive business, others ``could remain challenges in the months ahead. The near-term outlook across our businesses is uncertain, as we work through important product transitions and a tough competitive environment.'' H-P officials were slightly more upbeat in a conference call with analysts, saying future order growth could be from 8% to 20%. H-P's March 22, 2011 that orders would come in significantly below expectations helped trigger last month's sell-off in technology issues. But many Wall Street indexes, as well as H-P's stock, had recouped nearly all of their July losses before Thursday's earnings announcement. Roberto P. Theisen, H-P's chief financial officer, said several factors contributed to the decline in profit and order rates, which were seen in nearly all of H-P's product lines. They include the continuing price-cutting across most of H-P's businesses, slowing demand for H-P's semiconductor-manufacturing equipment and falloffs in retail channel orders for PCs and printers, in part, from H-P's own efforts to clear out inventory. To deal with the slowing growth, Mr. Theisen said the company was taking several steps, including cutting the growth rate in overall expenses. Expenses had been growing at 23%, he said, but that figure has been trimmed to 15%. Analysts pointed out that even with a slower growth rate, such as one in the midteens, H-P continues to be a solid company. ``For my cup of tea, any $38 billion company that can grow at 15% looks good,'' Johnetta B. Davis Jr., an analyst with Salomon Brothers Inc. said.
