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HP comfy with earnings estimates

Hewlett-Packard earned a bit more than predicted in the second quarter and said its comfortable with current estimates for the third quarter.

After market close Wednesday, the technology giant reported fiscal second-quarter earnings of $356 million, or 18 cents per share. The results included the effects of a previously announced $155 million write-off, but excluded other one-time charges and amortization. First Call's survey of 16 analysts predicted a profit of 15 cents per share for HP's second quarter ended April 30.

Analyst consensus originally called for Hewlett-Packard (NYSE: HWP) to earn 35 cents per share in the second-quarter, but that figure was revised after HP warned last month of disappointing results.

Shares of Hewlett-Packard traded at $28.20 in after-hours activity on the Island ECN, immediately following the release of quarterly results. Hewlett-Packard gained $1.32 to $26.72 in Wednesday's regular trading ahead of the earnings report.

The company said analysts' third-quarter estimates are "reasonable" for earnings, but added that revenue will be roughly the same as or down as much as 5 percent from the second quarter. According to First Call, HP is expected to report third-quarter earnings of 23 cents a share.

"They'll be able to slog through the economic downturn without anything imploding," said Daniel Kunstler, analyst with J.P. Morgan. "I don't think we could have expected much more. This is a very rough economic environment out there."

Second-quarter revenue fell 4 percent year-over-year to $11.6 billion. First Call consensus predicted revenue of $11.8 billion.

HP's imaging and printing revenue fell 3.2 percent year-over-year to $4.98 billion in the second quarter. Hewlett-Packard now produces 61 percent of all inkjet printer shipments, and generates 69 percent of the inkjet industry's revenue, CEO Carly Fiorina said during a conference call with analysts.

Computing systems, which include servers, PCs and notebooks, saw revenue decline 6.8 percent year-over-year to $4.66 billion. While the U.S. economic slowdown hurt, Hewlett-Packard executives said the company itself could do a better job.

"Our channel and go-to-market efforts are still a work in progress, so execution was also a factor," Fiorina told analysts. "We are making steady improvement day-by-day."

Revenue from high-end Unix servers increased 67 percent from the first quarter, but mid-range server revenue slid 32 percent year-over-year because of weakness in the telecommunications sector, a trend among corporate customers to consolidate systems, and strong competition, Fiorina said. Low-end Unix revenue in the second quarter increased 15 percent from a year ago.

Hewlett-Packard's PC revenue dropped, as the company refused to be drawn into a price war initiated by competitors such as Dell Computer (Nasdaq: DELL). "The fundamentals in this business simply don't warrant sacrificing profit for share," Fiorina said.

Although HP's revenue from commercial PC sales increased 3 percent from the first quarter, home PC revenue went down 15 percent. Notebook revenue increased 18 percent.

Last month's preannouncement drained any suspense from this week's report, but the market share gains in printing reported today and the company's work to improve its server business are signs of hope, analysts said.

"I can't say I'm pleased with Hewlett's results, because obviously they're under pressure," Lehman Brothers analyst George Elling said. "But I see light at the end of the tunnel. They're well-positioned in key markets to exploit opportunities when they occur."

Including all charges and excluding a one-time gain, HP earned $319 million, or 15 cents per share in the second quarter, down from $936 million, or 39 cents per share in the comparable period a year earlier. >