Earnings Preview: Hewlett-Packard

Feb.22.12 | About: HP Inc. (HPQ)

Hewlett-Packard (NYSE:HPQ) is expected to report Q1 earnings after the market close on Wednesday, February 22, with a conference call scheduled for 5:00 pm ET.


The consensus estimate is 87c for EPS and $30.70B for revenue, according to First Call. Many analysts think Hewlett-Packard will meet or exceed consensus because they believe the company has set the bar low enough. During its Q4 conference call in November, Catherine Lesjak, HP's CFO, said the company is taking a conservative approach given an uncertain global economy. Guidance provided for Q1 was for adjusted EPS 83c-86c and FY12 adjusted EPS at least $4.00. Management had said their EPS guidance does not factor in total meltdown in Europe. HP said it would not provide revenue guidance in FY12. They saw margins pressured in FY12 -- citing the overall decline in revenue, strong competitive pricing environment, and lower mix of business critical systems. HP sees FY12 as a "reset and rebuilding year." CEO Meg Whitman said the company remains "cautious heading into FY12 as the macro-environment remains uncertain globally and particularly in Europe." Whitman said, "We are not transforming into a software company and have no large M&A plans in FY12 -- no deals above $500M." Whitman expects to continue to gain market share in switching, routing.

Analyst Views

Deutsche Bank expects HP to report light revenue and modest EPS upside with weak Printing and Consumer PCs offset by relative strength in Corporate PCs and x86 servers. Overall, Deutsche expects weak organic revenue trends and currency headwinds to be offset by benign commodity pricing, past cost cutting/restructuring and favorable mix. Looking forward, Deutsche expects HP to maintain FY12 guidance although the firm expects several headwinds to persist, including higher expense associated with revitalizing Services, ongoing revenue declines in PCs and printers and continuing share losses in high-end servers, storage and networking.