HP profit up on notebook, printer supplies

Duncan Martell

SAN FRANCISCO: Hewlett-Packard Co. on Wednesday posted a 30 percent rise in quarterly profit that topped Wall Street estimates, spurred by robust sales of notebook computers and printer supplies.

The company also gave a profit forecast for the current quarter that was above the average Wall Street target, and shares rose 3.6 percent in after-hours trade.

HP, the world's No. 2 PC maker and No. 1 printer maker, said net income for its first fiscal quarter ended Jan. 31 rose to $1.23 billion, or 42 cents per share, from $943 million, or 32 cents per share, a year earlier. Revenue rose to $22.7 billion from $21.5 billion.

Excluding items, HP said it had a per-share profit of 48 cents per share, exceeding the average analyst estimate of 44 cents per share, according to Reuters Estimates. The analysts expected revenue of $22.6 billion.

"It looks like each underlying division was very strong, especially the closely watched imaging division, which is the key to the valuation of the company," said Steve Neimeth, portfolio manager for AIG SunAmerica Mutual Fund. "In addition, overall margins were better."

Since taking the helm last April, HP Chief Executive Mark Hurd has announced a restructuring calling for the elimination of some 15,300 jobs estimated to save about $1.9 billion annually. He has said repeatedly he is not planning to spin off any of HP's business, something many analysts have pressed the company to do since its purchase of Compaq in 2002.

"We've got a lot of work to do getting the restructuring we've announced finished," Hurd said in an interview. "You're going to continue to see us getting our costs right."

For the current quarter, HP said it expects a per-share profit before items of 47 cents to 49 cents per share on revenue of $22.4 billion to $22.6 billion.

On that basis, analysts expect a profit of 45 cents per share, on average, within a range of 42 cents to 49 cents per share, on revenue of $22.6 billion.

Revenue in HP's PC group rose 8 percent from the year-earlier quarter to $7.4 billion as unit shipments of PCs and notebooks climbed 16 percent. Notebook PC revenue increased 26 percent, reflecting their continued popularity amid the proliferation of wireless high-speed Internet access.

In the imaging and printing group, which accounts for a good deal of the company's overall profits, revenue climbed by 8 percent to $6.5 billion. Supplies revenue rose 11 percent. By contrast, rival Lexmark last month posted a 47 percent drop in profit, hurt by tough price competition.

In its enterprise storage and servers group, revenue increased 5 percent to $4.2 billion and posted an operating profit of $326 million.

"It looks like another strong quarter and it's becoming kind of par for the course for Hurd," said Brent Bracelin, an analyst at Pacific Crest Securities. "The upside was driven by the imaging and printing business as well as strength in the core PC market."

HP's board also authorized an additional $4 billion for repurchase of its common shares. During the quarter, Palo Alto, California-based HP eliminated 1,800 jobs as part of the previously announced overall number of some 15,300.

In a conference call with reporters, Hurd said that while there is still much hard work ahead, the company is headed in the right direction as costs continue to fall.

"Our efforts are starting to show results," Hurd said, adding later in the call: "I think the people of Hewlett-Packard have responded very well and done a great job amid a lot of change and a lot of things we've had to adjust in the company."

Shares of HP so far this year have risen 12 percent, based on Tuesday's closing price, compared with a 1.3 percent decline in rival International Business Machines Corp. HP was the best-performing stock in the Dow Jones Industrial Average in 2005, rising 37 percent.

Shares of HP climbed $1.13 to $32.80 in extended trade after falling 82 cents, or 2.5 percent, to close at $31.67 on the New York Stock Exchange.

Shares of HP trade at 17.3 times its estimated earnings per share for its fiscal year ending in October, compared with 13.9 times rival IBM's estimated profit per share for its year ending in December.

(Additional reporting by Caroline Valetkevitch in New York)

© Reuters