HP Earnings as Expected, Full Year Earnings Expected Lower

By Steve Anderson August 22, 2012

The continuing problems in the larger economy haven't caught Hewlett-Packard flat-footed, as its second quarter earnings turned out to be right about in line with Wall Street estimates from earlier, based on the earnings reports released earlier today. However, it wasn't all good news from HP, as they also announced that the full year's guidance would be down, slightly.

HP lowered the high end of its scale down just three cents, now expecting earnings between $4.05 per share and $4.07 per share. For the recent quarter, which ended in July, HP earned $2 billion, around a dollar per share, which was right in line with their own guidance as well despite sales falling off by five percent to around $29.7 billion.

Revenue from software saw an 18 percent increase during the third quarter, which was good news by any measure, but the personal systems group--both laptop and desktop computers--saw a 10 percent drop over the previous quarter. Additionally, they took a $10.8 billion charge on the recent acquisition of Electronic Data Systems. Moreover, HP plans a $1.5 billion expense in the form of severance pay to 27,000 employees slated for dismissal in a bid to reduce long-term costs.

Meanwhile, CEO Meg Whitman sounded some notes of cautious optimism following the announcements (indeed, a conference call to analysts featured her remarking that she was "cautiously optimistic"), saying that "HP is still in the early stages of a multi-year turnaround, and we're making decent progress despite the headwinds. During the quarter, we took important steps to focus on strategic priorities, manage costs, drive needed organizational change and improve the balance sheet. We continue to deliver on what we say we will do."

The market took her remarks with a grain of salt, as share prices spiked on the news but promptly began trading lower.

There is at least some reason to believe HP can make a turnaround. The improvement in software revenue is good, and the one-time charges are just that, one time. But there is still quite a bit left in the way of hurdles that HP will need to overcome to get themselves back to their former position of prominence, and at any point, HP may well find itself on the bad end of said hurdles.

Whitman's first anniversary on the job is about a month away, and a profitable second quarter is a great anniversary present indeed. But the relationship may sour in the coming weeks--HP's margin for error is slimming--and any misstep may well prove fatal. The road to recovery may prove long, but HP is clearly up for the challenge.

Edited by Amanda Ciccatelli

Contributing TechZone360 Writer

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