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Hewlett-Packard Company (HPQ - Analyst Report) reported fourth quarter 2012 earnings per share (EPS) of $1.16, exceeding the Zacks Consensus Estimate. However, revenue and earnings declined considerably compared with the prior-year quarter. Shares slumped following the earnings release.

Revenues

Revenues declined 6.7% year over year to $29.9 billion.

Personal Systems revenue declined 14.0% on a year-over-year basis. Within this segment, the Commercial revenue declined by 13.0% year over year, while the Consumer revenue plunged 16.0%.

Printing revenue dropped 5.0% on a year-over-year basis.

Services revenue declined by 6.0% on a year-over-year basis. Within this segment, the technology Services revenue dropped 4.0% year over year, Application and Business Services revenue declined by 7.0% from the year-ago quarter, IT Outsourcing revenue declined by 6.0%.

Enterprise Servers, Storage and Networking (ESSN) witnessed a revenue decline of 9.0% on a year-over-year basis. Within this segment, the Networking revenue was up 7.0%, while the Industry Standard Servers, Business Critical Systems and Storage revenues were down 7%, 25%, and 13% year over year, respectively.

Software revenue increased 14.0% year over year. The segment revenue was aided by 9.0% license revenue growth, 9.0% support revenue growth, and 48.0% revenue growth in services.

HP Financial Services revenue inched up 1.0% from the year-ago period as an 11% decline in financing volume offset the 3.0% increase in net portfolio assets.

Operating Results

Gross margin for the quarter was 24.2% compared with 21.2% in the year-ago quarter. Gross margin was positively impacted by modest cost control, and increase in the sales mix of high margin products.

Diluted GAAP loss per share was $3.49 compared with earnings per share of 12 cents in the prior-year quarter. This loss can be attributed to the write down in lieu of impairment charges. After adjusting for special items, non-GAAP net earnings per share were $1.16 compared with $1.17 in the prior-year quarter.

Balance Sheet, Cash Flow

Hewlett-Packard generated $4.06 billion in cash from operations versus $2.80 billion in the previous quarter. The company ended the quarter with $11.3 billion in cash and cash equivalents versus $9.5 billion in the previous quarter. The company exited the quarter with a long-term debt balance of $21.8 billion, down from $24.0 billion in the previous quarter.

Guidance

Management expects first quarter fiscal 2013 non-GAAP diluted EPS to be between 68 cents and 71 cents. GAAP diluted EPS is projected at 34 cents to 37 cents.

For fiscal 2013, the non-GAAP diluted EPS is expected between $3.40 and $3.60, while the GAAP diluted EPS is projected range from $2.10 to $2.30.

Conclusion

Hewlett-Packard’s fourth quarter 2012 earnings per share were in line with the Zacks Consensus Estimate, but revenues declined from the year-ago period. Results were negatively impacted by macroeconomic factors, lower order renewal, and reduction in business fundamentals across segments.

The company is taking major steps to revive some of its businesses. Management is taking strategic and innovative steps to manage costs, drive growth and also to improve the health of its balance sheet. However, cannibalization of PC is taking a toll on the company’s business.

On the other hand, the printer business looks challenging, given the continuous roll out of printing devices at competitive prices by other technology giants including Samsung, Canon (CAJ - Snapshot Report), Epson and Lexmark (LXK - Analyst Report). Moreover, HP is expected to witness significant competition from the likes of Apple Inc. (AAPL - Analyst Report) and Dell Inc. .

HPQ has a Zacks #4 Rank, implying a Sell rating.

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