February 21, 2013 9:34 pm

Relief over HP results buys Whitman time

Meg Whitman bought more time for her attempted turnround of Hewlett-Packard on Thursday as the struggling computer maker reported that revenues and earnings had fallen less than feared in its latest quarter.

Ms Whitman, former chief executive of eBay, has said she needs five years to put the company fully back on its feet.

A potential break-up is one idea that has been discussed by HP’s directors if the turnround fails to gain momentum, according to a person familiar with the company, although the board has not set up a formal process to study the idea.

HP reported revenues of $28.4bn for the three months to the end of January, down 6 per cent from a year before, as sales in its PC division fell 8 per cent. Net income dropped 16 per cent to $1.2bn, or 82 cents a share on an adjusted basis. Wall Street had been expecting revenue of $27.8bn and earnings per share of 71 cents.

The company’s shares rose more than 5 per cent to $18 in after-market trading on Thursday on relief that the decline, which was felt across all of HP’s divisions, had not been more severe.

“If I had to characterise it, I’d say the patient showed some improvement,” Ms Whitman said on a call with investors. She added, though, that she was not raising her forecasts for the rest of the year because the company did not want to “get ahead of itself” in what was still likely to be a difficult year.

HP’s shares fell to $11.71 before it last reported quarterly results, as it took an $8.8bn writedown on its acquisition of Autonomy and accused the UK software company’s former management of falsifying its accounts. HP’s shares have rallied by 54 per cent since then, including the after-market gain on Thursday, on growing hopes that Ms Whitman can reverse the slide.

Cathie Lesjak, chief financial officer, described the latest results as “a constructive data point along the path to the turnaround” and HP’s biggest earnings outperformance in years.

The biggest improvement came in HP’s imaging and printing division, where the pre-tax profit margin climbed by nearly 4 percentage points, to 16.1 per cent. Once the star performer in HP’s portfolio of businesses, printing had been hit by a fall-off in the consumer market as its customers have turned to online services. Ms Lesjak said the rebound showed that HP’s strategy of focusing on office printing and multi-function machines was starting to pay off, and that the company had reduced its excess inventory of printing supplies.

The recent slump in the PC market, however, put a further dent in HP’s personal systems division, almost halving its pre-tax profit margin to 2.7 per cent.

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