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Hewlett-Packard Company (HPQ - Analyst Report) reported second-quarter 2013 earnings per share (EPS) of 87 cents, exceeding the Zacks Consensus Estimate of 81 cents. However, quarter’s earnings declined considerably compared with the comparable prior-year quarter.

Revenues

Revenues declined 10.1% year over year to $27.6 billion. The company witnessed decline in revenues across all its business segments. The overall weakness was led by the aggressive pricing by the competitors and macro backdrop.

Segmental Revenues

Personal Systems revenues declined 19.9% year over year on reduced PC volume. Within this segment, Commercial revenues declined 14.0% and Consumer revenues declined 29.0%. Total units sold were down 21.0% compared to the year-ago quarter, with Desktop units down 18.0% and Notebook units down 24.0%.

Printing revenues declined 1.0% on a year-over-year basis. Total hardware units were down 11.0% year over year, while the Commercial hardware units were down 5.0% year over year and Consumer hardware units were down 13% year over year.

Enterprise Group (EG) revenues declined 10.0% year over year as a result of declines across servers, storage and technology services. Apart from this, the Industry Standard Servers revenues dipped 12.0%. Business Critical Systems revenues were down 37.0%, Storage revenues were down 13.0% and Technology Services revenues were down 3.0% year over year.

Enterprise Services (ES) revenues were down 7.6% year over year, primarily due to a 10.0% decline in Application and Business Services revenues and a 6% fall in IT Outsourcing revenues. Software revenues declined 3.0% year over year. In this segment, support revenues were up 12.0%, while license revenues were down 23.0% and services revenues were down 5.0% year over year.

HP Financial Services revenues declined 9.0% year over year as a result of a 3.0% decline in net portfolio assets, along with a 24.0% decrease in financing volume.

Operating Results

Gross margin for the second quarter was 23.7%, up 50 basis points (bps) compared to the year-ago quarter, driven by margin improvements in printing, rationalized to a certain extent by unfavorable supplies mix and higher average prices for consumer hardware units. This was offset to a certain extent, by margin declines across Personal Systems, Enterprise Services and the Enterprise Group.

GAAP earnings per share were $1.08 billion or 55 cents compared with $1.60 billion or 80 cents in the prior-year quarter. After adjusting for special items like amortization of purchased intangibles, impairment of goodwill, restructuring and acquisition related charges, non-GAAP net earnings were $1.70 billion or 87 cents per share, compared with $1.95 billion or 98 cents per share.

Balance Sheet and Cash Flow

Hewlett-Packard generated $3.56 billion in cash from operations versus $2.56 billion in the previous quarter. The company ended the quarter with $13.2 billion in cash and cash equivalents versus $12.6 billion in the previous quarter. The company had a long-term debt balance of $19.9 billion, marginally lower than $21.7 billion in the previous quarter.

Guidance

For the third quarter of fiscal 2013, the company expects non-GAAP EPS in the range of 84 cents to 87 cents and GAAP EPS in the range of 56 cents to 59 cents.

For fiscal 2013, HP estimates non-GAAP EPS in the range of $3.50 to $3.60 and GAAP EPS in the range of $2.50 to $2.60, in line with HP's previously communicated outlook. For fiscal 2013, non-GAAP EPS estimates exclude after-tax costs of approximately $1.00 per share.

Summary

Hewlett-Packard is one of the world’s largest computing and technology companies. Its second-quarter 2013 earnings exceeded the Zacks Consensus Estimate, but revenues stumbled considerably. Results were moderately impacted by macroeconomic factors and a massive decline in the PC business.

Although the company has been able to surprise the market with some new and innovative products, it has not been able to support its revenue base. Management’s initiatives to control costs, drive growth in higher-margin segments and enhance its balance sheet, are other positives.

Hewlett-Packard has a Zacks Rank #3 (Hold).

Investors can look at other companies, such as, SanDisk Corp. (SNDK - Analyst Report) carrying a Zacks Rank #1 (Strong Buy) and Hutchinson Technology Inc. (HTCH - Snapshot Report)), Western Digital Corp. (WDC - Analyst Report) carrying a Zacks Rank #2 (Buy).

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