HP Earnings Surprise

NEW YORK (MarketWatch) -- Shares of Hewlett-Packard Co. headed higher in premarket trading Wednesday on the heels of its first-quarter earnings release.
After the bell Tuesday, the high-tech heavyweight reported a 38% rise in first-quarter earnings that were driven in large part by strong sales of notebook and desktop PCs.

In addition, Hewlett-Packard stepped up its outlook for the remainder of the year, cooling fears of a slowdown in tech spending that has hit other big players in the space in recent weeks. Shares climbed 4.3% to $45.85 in Wednesday premarket trading.

In a research note issued Wednesday, analysts at Thomas Weisel Partners wrote, "We believe the raised EPS guidance is a result of expected improving business mix and better-than-expected cost reductions resulting from consolidation of IT infrastructure and real estate footprint." They maintained a market-weight rating on the stock.
The world's No. 1 personal computer company said it earned $2.1 billion, or 80 cents a share, compared with $1.5 billion, or 55 cents a share, in the year-ago period. Revenue rose 13% to $28.5 billion from last year's $25.1 billion. Excluding charges and one-time items, H-P would have earned $2.3 billion, or 86 cents a share.
HPQ 43.95, +0.08, +0.2%) beat the estimates of analysts surveyed by Thomson Financial, who forecast the company to earn 81 cents a share on $27.6 billion in sales.
The results were seen as a barometer for the tech sector, which has put in a mixed performance over recent months due to concerns over financial issues and a slowdown in the U.S. economy.
"Our growth was in multiple segments and multiple markets," said Hurd, who noted that during the quarter, 69% of H-P's sales came from outside the U.S.
Among its main business areas, H-P said personal systems, or PC sales, rose 24% from a year ago to $10.8 billion, as total unit shipments climbed 27%. Notebook PC sales totaled $5.66 billion, up 37% from a year ago, and desktop revenue rose 15% to $4.4 billion. The division reported an operating profit of $628 million, up from last year's $414 million.
"In light of the difficult macro economic environment, the H-P results look very solid all around," said Shaw Wu, who covers H-P at American Technology Research.
Imaging and printing remained H-P's most-profitable business area, with an operating profit of $1.2 billion, up slightly from $1.1 billion a year ago. Revenue for the group was up 4% from a year ago to $7.3 billion.

But while most of H-P consumer and commercial printing areas posted improvements over a year ago, the company's consumer printer hardware unit shipments slipped by 2% from last year's first quarter.
Hurd said the results were impacted somewhat by the company halting the production of its own digital cameras and putting more emphasis on graphic arts and commercial printing as part of H-P's Print 2.0 business campaign.
Wu added that H-P's PC and printing results "actually came in better than expected," indicating that the company is continuing to take market share from its top rivals. Wu has a buy rating on H-P's stock.

Among H-P's other business areas, enterprise storage and servers reported operating profit of $673 million on $4.8 billion in sales. Blade server sales rose 81% from a year ago, while industry-standard server revenue grew by 11% and storage sales rose 10% over the prior year.
H-P's software business saw its operating profit nearly triple from a year ago to $51 million and sales rose 11% to $666 million. H-P services division reported operational earnings of $489 million, while revenue grew 11% to $4.4 billion from last year's $3.93 billion.
Hurd also said that for H-P's second quarter, the company expects to earn 77 cents to 78 cents a share on revenue in a range of $27.7 billion to $27.9 billion. Excluding one-time items, H-P estimates it will earn between 83 cents and 84 cents a share. Analysts had forecast H-P to earn 82 cents a share on $27.4 billion in sales