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Shares of Hewlett-Packard Company (HPQ - Analyst Report) or H-P went up 5.4% in after-hours trading post better-than-expected fourth-quarter of fiscal 2013 results.

H-P’s fourth-quarter non-GAAP earnings of $1.01 per share beat the Zacks Consensus Estimate by a penny. Although the company’s earnings improved 17.4% on a sequential basis, they were down 12.9% on a year-over-year basis.

Revenues

H-P’s revenues of $29.1 billion beat the Zacks Consensus Estimate of $28.1 billion despite 2.8% decline from the year-ago quarter. On a sequential basis, revenues improved 7%.

Segmental Revenues

Personal Systems revenues declined 1.7% year over year to $8.58 billion, primarily due to 10% revenue decline in the consumer segment which more than offset the 4% increase in revenues from the commercial segment.

The growth in the commercial revenues was driven by robust performance of its Ultrabook-HP EliteBook Folio. Total units sold were up 2.0% compared to the year-ago quarter. While Desktop units declined 5.0%, Notebook units were up 3.0%.

Printing revenues were down marginally (down 0.6%) year over year to $6.04 billion. Despite the revenue declines, total hardware units increased 6.0% year over year due to increase in laser volume and SMB home business.

The segment’s commercial hardware revenues grew 3.0% from the year-ago quarter buoyed by its transactional laser, management services and graphics business. Consumer hardware revenues increased 7% during the period due to traction in its Officejet Pro X. However, these increases were more than offset by a 4% decline in Supplies revenues.

Revenues from the Enterprise Group were up 1.8% from the year-ago quarter to $7.59 billion as H-P’s Industry Standard Servers, networking and storage performed better.

Apart from this, revenues from the Industry Standard Servers increased 10.0%, while Business Critical Systems revenues slumped 17.0% from the year-ago quarter due to declines in the UNIX market.

Moreover, Storage revenues increased 1.0% from the year-ago quarter due to robust growth in converged storage space. Technology Services revenues were down 6% on a year-over-year basis.

Although Enterprise Services revenues were down 9.4% year over year to $5.76 billion, bookings during the quarter increased 30% from the year-ago quarter, primarily driven by growth in renewals.

Revenues were impacted by a 10.0% decline in Application and Business Services revenues and 9% decline in IT Outsourcing revenues.

Software revenues also declined 9.1% year over year to $1.06 million primarily due to tough year-over-year comparisons due to the General Motors (GM - Analyst Report) contract signed in the year-ago quarter.

Support revenues were up 4.0%, while license revenues were down 24%. Professional services revenues were down 13% year over year but SaaS revenues were up 15.0%. SaaS revenues increased higher bookings from its business units, mainly in Autonomy, IT Management and Fortify on Demand.

HP Financial Services revenues declined 5.6% year over year to $912.0 million primarily due to volume declines. Financing volume declined 3% year-over-year and had net portfolio assets of $12.2 billion.

Operating Results

H-P’s gross margins were down 121 basis points (bps) on a year-over-year basis to 23.0% primarily due to lower revenue base. Moreover, unfavorable product mix and pricing pressures impacted margins.

Although H-P’s operating expenses were down 1.4% from the year ago quarter to $4.1 billion, as a percentage of revenues, expenses were up 20 bps. This impacted operating margins, which contracted 142 bps to 9% on a year-over-year basis. H-P’s non-GAAP net margins were also down 89 bps on a year-over-year basis.

Balance Sheet and Cash Flow

The company ended the quarter with $12.2 billion in cash and cash equivalents versus $13.3 billion in the previous quarter. The company had a long-term debt balance of $16.6 billion, down from $17.1 billion in the previous quarter.

H-P generated $2.82 billion in cash from operations versus $2.67 billion in the previous quarter. During the quarter, H-P repurchased stocks worth $479 million and paid dividends of $284 million.

Guidance

H-P expects its non-GAAP earnings for the first quarter of 2014 to range between 82 cents and 86 cents per share and that for fiscal 2014 to be within $3.55 to $3.75.

H-P expects revenues from Personal Systems to decline further due to higher commodity costs. The company also forecasts revenues from Enterprise Group to decline sequentially but expects to gain traction in converged storage and networking and converged infrastructure.

Moreover, revenue run-off from fiscal 2013 is expected to impact Enterprise Services segment revenues. The company’s shift toward the SaaS is expected to continue in this quarter as well.

Summary

Although H-P reported better-than-expected top and bottom-line results, the year-over-year comparisons were dismal. Pricing pressures also impacted margins. Moreover, the company did not provide an encouraging guidance.

Nonetheless, the company’s tractions in the cloud, security and big data segments are the positives, going forward. Restructuring initiatives and management changes are also expected to keep the company in the growth path. The company’s shift to core software business will also help it to achieve long-term profitability.

However, continuing macroeconomic challenges, tepid IT spending and competition from International Business Machines (IBM - Analyst Report) and Oracle (ORCL - Analyst Report) are the headwinds, going forward.

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

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