Hewlett-Packard Company (HPQ - Analyst Report) reported first-quarter 2013 earnings per share (EPS) of 82 cents, exceeding the Zacks Consensus Estimate of 71 cents. However, revenues and earnings declined considerably compared with the comparable prior-year quarter.
Revenues declined 5.5% year over year to $28.4 billion. The decline in revenues is consistent with the last quarter. The company’s share gains and high value ink hardware as well as a cost related to the multifunction of the portfolio are expected to be favorable.
Hewlett-Packard’s new ink technology provides innovation for the SMB customers, while the launch of the new Officejet Pro X admit created strong customer interest for the product.
Segmental Revenue for the First Quarter
Personal Systems revenue declined 8% year over year. Commercial revenue declined 4% and Consumer revenue declined 13%. Within this segment, total units declined 5% with Desktops moving up 10% and Notebooks moving down 14%.
Printing revenue declined 5% on a year-over-year basis. Total hardware units were down 11% year over year. The Commercial hardware units were down 6% year over year, and Consumer hardware units were down 13% year over year.
Enterprise Group (EG) revenue declined 4% year over year but Networking revenue was up 4%. This apart, the Industry Standard Servers revenue dipped 3%. Business Critical Systems revenue was down 24%, Storage revenue was down 13% and Technology Services revenue was down 1% year over year.
Enterprise Services (ES) revenue were down 7% year over year, primarily due to a 9% decline in Application and Business Services revenue and a 6% fall in IT Outsourcing revenue. Software revenue declined 2% year over year. In this segment, support revenue was up 11%, while license revenue was down 16% and services revenue was down 8% year over year.
HP Financial Services revenue climbed 1% year over year aided by a 1.0% increase in net portfolio assets squared off to a certain extent by a 25% decrease in financing volume.
Gross margin for the first quarter was 22.3%, down 10 basis points (bps) on a year-over-year basis. The fall was attributable to tough pricing environment in the company’s personal systems market, coupled with contractions in margins within EG and ES, which were partially offset by the expansion in printing as margin improved in ink hardware and toner.
GAAP earnings per share were 63 cents compared with 73 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 per share were 82 cents compared with 92 cents in the prior-year quarter.
Balance Sheet, Cash Flow
Hewlett-Packard generated $2.56 billion in cash from operations versus $4.06 billion in the previous quarter. The company ended the quarter with $12.6 billion in cash and cash equivalents versus $11.3 billion in the previous quarter. The company exited the quarter with a long-term debt balance of $21.7 billion, marginally lower than $21.8 billion in the previous quarter.
For the second quarter of fiscal 2013, the company expects non-GAAP EPS in the range of 80 to 82 cents and GAAP EPS in the range of 38 to 40 cents.
For fiscal 2013, HP estimates non-GAAP EPS in the range of $3.40 to $3.60 and GAAP EPS in the range of $2.30 to $2.50, in line with HP's previously communicated outlook. For fiscal 2013, non-GAAP EPS estimates exclude after-tax costs of approximately $1.10 per share.
Hewlett-Packard’s first-quarter 2013 earnings exceeded 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 in some segments.
The company is taking major steps to revive some of its businesses. Management is taking steps to manage costs, drive growth and improve the health of its balance sheet.
Further, the PC business is affected to a considerable extent and is taking a toll on the company’s business. This apart, the printer business looks challenging, given the continuous roll out of printing devices at competitive prices.
Given the above-mentioned factors, Hewlett-Packard carries a Zacks Rank #3 (Hold).
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