Hewlett-Packard Posts 26% Profit Gain

Hewlett-Packard enjoyed a 26% jump in Q1 earnings on the back of strong holiday demand for PCs and printers. The company earned $1.55 billion ($0.55/share) for the quarter ended Jan. 31 versus $1.23 billion ($0.42/share) last year. Q1 revenue was $25.1 billion against $22.7 billion a year ago, an 11% gain. Excluding charges, the company earned $1.8 billion ($0.65/share), ahead of analyst forecasts of $0.62/share on $24.3 billion in revenue. Though earnings beat estimates, overall profit margin contracted to 7.3% from 7.7% in the previous quarter. H-P's price-cut strategy on PCs paid off, enabling the company to regain the number-one position in U.S. PC sales from Dell. CEO Mark Hurd plans several cost-cutting measures, including a freeze of the company's U.S. pension plan, a reduction in eligibility for a subsidized retiree medical program, and an early-retirement program. Q2 EPS is estimated at $0.63-0.64, in line with analyst expectations, on sales of $24.5 billion. The sales estimate implies a 2.5% seasonal decline, raising concerns that H-P will not be able to sustain its market share gains. Q2 sales are projected at $24.5 billion, 8.6% above a year earlier. For the full fiscal year, sales are forecast at $98-99 billion, a 6.9-8% increase.

Sources: Wall Street Journal, MarketWatch, Business Week, Bloomberg. Conference call transcript: F1Q07
Commentary: H-P's Earnings Beat Estimates But Concerns Remain • Hewlett-Packard: Estimates in for Strong Fourth Quarter • Consumer PCs Beyond Apple: HP and Gateway are Hot, Dell is Not
Stocks/ETFs to watch: Hewlett-Packard Co. (HPQ). Competitors: Dell Inc. (DELL), International Business Machines Corp. (IBM), Canon Inc. (CAJ). ETFs: Internet Architecture HOLDRs (IAH), iShares Dow Jones US Technology (IYW), PowerShares Dynamic Hardware & Consumer Electronics (PHW)

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