HP beats expectations but lowers financial forecast

Revenue and profit increase from a year earlier, but soft PC sales and repercussions from Japan's earthquake will take a toll on Hewlett-Packard's full-year performance.

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HP CEO Leo Apotheker
HP CEO Leo Apotheker Dan Farber/CNET

Hewlett-Packard edged ahead of profit and revenue expectations for its second quarter but lowered its forecast for full-year financial results because of issues with services, the Japan earthquake, and PC sales.

The company today reported non-GAAP earnings per share of $1.24 for the quarter that ended April 30, compared with average expectations of $1.21 by analysts surveyed by Thomson Reuters. Quarterly revenue of $31.63 billion was a notch better than the expected $31.53 billion.

"HP executed well and delivered a solid quarter," Chief Executive Lee Apotheker said in a statement. Revenue grew 3 percent compared with the year-earlier quarter, and profits increased 14 percent.

HP had planned to report financial results tomorrow. But yesterday, the company moved the schedule up by a day. The likely reason: a leaked memo published in The Wall Street Journal and Bloomberg in which Apotheker warned lieutenants of "another tough quarter."

Today, HP publicly acknowledged that things will be a bit harder for the rest of the year.

"HP's revised outlook for the third quarter and the full year fiscal 2011 reflects an expected near-term impact from the Japan earthquake and related events, continued softness in sales of consumer PCs, and reduced operating profit expectations for services," the company said today.

Last quarter, HP had forecast full-year earnings on a non-GAAP (generally accepted accounting principles) basis that would be between $5.20 and $5.28 per share. Today, though, it lowered that forecast to just "at least $5.00." Fiscal 2011 revenue likewise was lowered from a range of $130 billion to $131.5 billion to a range of $129 billion to $130 billion.

For HP's third quarter currently under way, revenue and profit likely won't rise to expectations. Analysts had expected earnings of $1.23 per share on revenue of $31.78 billion. HP, though, warned today that it expects earnings of about $1.08 per share and revenue between $31.1 billion and $31.3 billion.

In trading before the market opened, HP stock dropped $2.21, or 6 percent, to $37.59.

Results for HP's divisions were as follows for its second quarter:

• PC revenue dropped 5 percent from the year-earlier quarter. Here, corporate and consumer markets were split: revenue from business sales of PCs grew 13 percent, but consumer PC revenue dropped 23 percent.

• Revenue from servers, storage systems, and networking equipment increased 15 percent.

• Revenue from services increased 2 percent. It's an area Apotheker is addressing: "Today we are accelerating our efforts to align our services business model to our long-term strategy to deliver unprecedented value to our customers and a better return for our shareholders," he said.

• Imaging and printing revenue increased 5 percent.

• Software revenue increased 17 percent, and the software group has the highest operating margin, 20.2 percent.

• Financial services grew 17 percent.

HP overall generated $4 billion in cash flow from operations during the quarter.

Updated at 5:18 a.m. PT with further detail.