PC profit boosts HP's first quarter

Boosted by a return to profitability in its PC business, Hewlett-Packard posted fiscal first-quarter earnings that narrowly topped analysts' estimates, though sales fell short of predictions.

For the three months ended Jan. 31, HP posted a profit of $721 million, or 24 cents per share, on revenue of $17.9 billion. Excluding amortization charges and other acquisition-related items, HP would have posted a profit of $877 million, or 29 cents per share.

Analysts had been expecting a profit, excluding those charges, of 28 cents per share, according to tracking firm First Call. However, revenue fell short of the $18.5 billion consensus estimate of analysts polled by First Call.

"HP is making good headway and continues to execute well," HP CEO Carly Fiorina said in a statement. "Our revenue shortfalls were largely confined to the U.S. market, as weak commercial spending continued."

In December, HP lowered its official forecast for the current financial year, predicting growth of 2 percent to 4 percent, down from an earlier projection of 4 percent to 6 percent.

For the current quarter, the Palo Alto, Calif.-based company said it expects to post earnings of 27 cents per share, in line with the current consensus estimate.

In an interview, CFO Bob Wayman declined to provide a specific forecast for revenue for the current quarter, saying the possibility of war and other factors are making it difficult to predict much about the future. On a conference call with analysts, Wayman said the company expects revenue in the current quarter to be "flat to down slightly" as compared with the first quarter. Estimates of IT spending vary greatly throughout the industry, he added.

"It's all over the map," he said. Analysts have been forecasting revenue of around $18 billion for the current quarter, First Call said.

The company's imaging and printing business, which accounts for the bulk of overall profits, posted an operating profit of $907 million, down 4 percent from the company's fiscal fourth quarter on flat sales of $5.6 billion. The company continues to gain share in that market, according to a study released this week by market researcher IDC.

HP said its personal systems group, which includes the PC business, saw an operating profit of $33 million, compared with a loss of $68 million last quarter. Revenue totaled $5.1 billion, up 2 percent from the preceding quarter.

The company said its loss narrowed in its Enterprise Systems Group, which includes servers, storage and software. The unit posted an operating loss of $83 million during the quarter, down from $129 million from the fiscal fourth quarter. Revenue was $3.7 billion, down 6 percent sequentially, with HP blaming a weak market in the United States and Latin America for the decline.

The company's services business also saw a drop in revenue from the prior quarter, with sales down 3 percent, to $3 billion. Operating profit was $341 million, down 6 percent from the preceding quarter.

Much of HP's improved profitability has come from cost cuts as combined company sales in the first quarter were down 8.8 percent from the $19.6 billion posted a year ago. Wayman said HP benefited from an additional $250 million in merger-related cost savings in the first quarter as compared with the prior quarter.

"I think we did a good job of executing on the things we can control," Wayman said.

HP was profitable in four of its five business units, with the PC business profitable for the first time since 2000, an HP representative said. Only the company's enterprise systems group had an operating loss, and HP officials said that group should reach profitability sometime during the current fiscal year.

In the fiscal fourth quarter, only two of the business units--services and imaging/printing--had been profitable.

The company pledged at a December analysts' meeting that the PC unit would be profitable by the first half of the fiscal year, but had indicated that it would likely not turn a profit in the first quarter. Although profits were up, sales in the PC unit were down--the first-quarter sales of $5.1 billion came in well below the $6.3 billion posted a year earlier, though they were up sequentially.

The fifth business unit, financial services, also swung from an operating loss to profit. Revenue was $517 million, down 4 percent sequentially, and operating profit was $14 million versus a $101 million loss in the earlier period.

HP shares fell in after-hours trading, changing hands recently at $17.33 on the Island ECN, after closing regular trading at $18.18, up 43 cents or 2.4 percent.