HP shares ride on strong profit to five-year high

CIOL Bureau
Updated On
New Update

Duncan Martell


SAN FRANCISCO: Shares of Hewlett-Packard Co. jumped as much as 9 percent to a 5-year high on Thursday, a day after the No. 2 personal computer maker posted an unexpectedly strong quarterly profit that signaled improving operations and cost cuts.

"We have been citing improving execution as a key driver of earnings growth while conventional wisdom and headlines have credited cost cutting," wrote Moors & Cabot analyst Cindy Shaw in a note. "Based on yesterday's results and questions on yesterday's conference call, we think investors are finally realizing that cost cutting is only part of the story."

Shares of HP, which is also the No. 1 printer maker, rose as high as $34.51, a level last reached in February 2001, on Thursday. The shares closed up $2.35, or 7.4 percent, at $34.02 on the New York Stock Exchange.


After U.S. markets closed on Wednesday, HP reported a 30 percent increase in net income for its fiscal first quarter, spurred by robust sales of notebook computers and printer supplies. HP also gave a profit forecast for the current quarter that was above the average Wall Street target.

Chief executive Mark Hurd, who took the helm last April after the HP board ousted Carly Fiorina, has launched a restructuring that calls for the elimination of some 15,300 jobs estimated to save about $1.9 billion annually.

In addition, two of the company's mainstay businesses -- PCs and printers -- posted strong results in the first quarter and the once struggling server and storage division reported improved results.


"With the exception of HP services and HP Financial Services, every segment delivered better-than-expected operating margins," wrote Sanford Bernstein analyst Toni Sacconaghi in a note to clients. He noted that the company's earnings-per-share forecast for the current quarter is likely "conservative."

That, he wrote, suggests that analysts' estimates for the Palo Alto, California-based company could edge still higher.

In an interview after HP reported its results, Hurd said that overall, the demand for information technology products and services is reasonable.


"Clearly there are stories within the story," Hurd said. "When you net all of that together you'd probably say it's steady."

While costs continue to come down, Goldman Sachs analyst Laura Conigliaro also cited better execution by HP.

"HP's fundamental earnings power highlights that this is more than just a restructuring story," Conigliaro wrote in a note to clients.


She calculated that savings from HP's restructuring accounted for about 3 cents of its January quarter earnings per share, or 5 percent of total earnings.

HP said net income for the first quarter ended Jan. 31 rose to $1.23 billion, or 42 cents per share, from $943 million, or 32 cents per share, a year ago. Revenue rose 6 percent to $22.7 billion.

HP was the best-performing stock in the Dow Jones industrial average in 2005, and, so far this year, has risen 18 percent, including Thursday's gains.