Hewlett-Packard's New Releases Will Not Boost Price Multiples

| About: HP Inc. (HPQ)

Hewlett Packard (NYSE:HPQ) recently unveiled several new offerings, including the world's first display with integrated beats audio, a touch notebook, a pocket-sized storage device for wireless content streaming, and others. The offerings are intended to make Hewlett Packard trade at price multiples that are reasonable for profitable investing. Unfortunately, the expectations surrounding these offerings will not translate to Hewlett-Packard improving its low price multiples.

Why did sales growth slow down?

Hewlett Packard announced quarter four full-year fiscal 2012 net revenue of $120.4 billion, down 5% from prior-year period and down 4% when adjusted for effects of the currency. Full-year GAAP loss per share was $6.41, down from diluted earnings per share of $3.32 in the prior-year period. Full-year non-GAAP diluted EPS was $4.05, down 17% from the prior-year period.

The fall in revenue is blamed on Hewlett-Packard's tendency to release products and jump into markets after they've peaked. It slid into the LTE market and promised sleeker enterprise, but its numbers haven't justified the initiative. The company looked for a buyer to purchase its PC manufacturing end, backpedaled, and is now stuck with an aging technology and few options.

Hewlett-Packard announced third-quarter net revenue of $29.7 billion, down 5% year over year and down 2% when adjusted for the effects of currency. GAAP loss per share was $4.49, down from the EPS of $0.93 in the prior-year period. Non-GAAP diluted EPS was $1.00, down 9% from the prior-year period. The personal systems division, which is responsible for the new offerings, also suffered declined revenue.

"During the quarter, we took important steps to focus on strategic priorities, manage costs, drive needed organizational change, and improve the balance sheet," said Meg Whitman, the CEO of Hewlett Packard.

The company had a number of new offerings in 2012. It launched new window-based products in September, which included ultra-portable, stylish notebooks, and two desktop PCs. Hewlett Packard launched a web-enabled browser targeting publishing houses. HP also announced it was increasing customer satisfaction and loyalty by extending the multi-channel capabilities of HP Exstream, its customer communications management (CCM) solution, to include SmartVideo and digital mailbox services.

In October, the company announced new HP Office jet Pro and HP LaserJet printers and content management solutions designed to redefine business and government printing. It then announced its lineup of support tools to help customers easily transition to new HP Windows 8-based products and upgrade existing HP devices to the new operating system.

"We're starting to see progress in key areas such as new product releases and customer wins. We're particularly pleased that in Q4, we were able to improve our balance sheet, generating $4.1 billion in operating cash flow and we returned $384 million to shareholders in form of share repurchases and dividends," said Whitman. Despite this, Hewlett Packard announced fourth-quarter revenue of $30.0 billion, down 7% year-over-year and down 4% when adjusted for effects of the currency. Fourth-quarter GAAP loss per share was $3.49, down from diluted EPS of $0.12 in the prior-year period. Fourth-quarter non-GAAP diluted EPS was $1.16, down 1% from the prior-year period. Significantly, the company's personal systems division, also suffered a revenue decrease of 14% year over year with a 3.5% operating margin.

Hewlett-Packard's new offerings include products with affordable touch notebook personal computers. The integrated beats audio provides a unique audiovisual experience, with built-in speakers angled upward to deliver great mid-range and high frequencies. It is noticeable that Hewlett Packard's offerings are the first in the new year. Now, its understandable that gaining a head start is wise for Hewlett Packard.

If we relate Hewlett-Packard's past offerings to its financial statements, it is clear that the company has not improved its position in comparison to 2011. In addition, its losses are increasing, so it can be said that the company is not operating at an optimum efficiency level.


With earnings per share (NYSEARCA:EPS) of -6.41, compared with 3.61 for Accenture (ACN), 1.55 for Cisco (CSCO), 1.47 for Dell (DELL), and 13.91 for IBM (IBM), and gross margin of 23%, compared with 32% for Accenture and 48% for IBM, Hewlett Packard is underperforming compared with its competitors.


Hewlett-Packard took an $8.8 billion accounting charge, after discovering "serious accounting improprieties" and "outright misrepresentations" while acquiring Autonomy, a British software maker. Looking at the successive offerings and the worsening margins, we can say that Hewlett-Packard is not a good buy at the moment.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.