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December 1, 2011 12:50 am
Standard & Poor’s on Wednesday cut the rating of Hewlett-Packard’s debt by two notches from single A to triple B plus, citing “aggressive financial policies”, inconsistent growth strategies and high management turnover.
The move puts HP’s rating three notches above junk but S&P gave the company a stable outlook.
S&P said liquidity and financial flexibility had been reduced by the recent $10.2bn acquisition of Autonomy, a UK software company, and share buy-backs that were well in excess of its discretionary cash flow.
“In addition, we have concerns that HP’s inconsistent growth strategies and high levels of board of director and senior management turnover have elevated the level of operational and execution risk in the near term,” the rating agency said.
HP declined to comment on the downgrade.
The double-notch downgrade will make borrowing more expensive for the company, which is on its third chief executive in little more than a year.
Meg Whitman, formerly an independent director, was named this autumn as the latest chief in part because of investor concern at the high price paid for Autonomy, along with the open contemplation of spinning off the personal computer division.
In an earnings call last month, she said the company did not plan any more acquisitions above $500m. She had already reversed course on the spin-off plan. The company said it planned to continue its “modest” buy-back programme.
At the same time Cathie Lesjak, chief financial officer, said the company planned to work on improving its balance sheet.
The board, which recently added Ralph Whitworth, an activist investor, as a director, has come under fire for its previous choice of Léo Apotheker as chief executive, for firing him after about 10 months and, most recently, for selecting Ms Whitman from among its own ranks without a wider search.
In the three months to October, HP reported an 89 per cent drop in net income to $239m, or 12 cents a share, after charges mainly to discontinue smartphones and a tablet based on the webOS operating system. Revenue slipped to $32.1bn from $33.3bn.
The company ratcheted down profit expectations after the last quarter, citing a range of factors including the worldwide economy, flooding in Thailand and the need to invest more in its services business.
In after-hours trading, the stock dropped 0.5 per cent to $27.81, having risen 3.9 per cent during the regular trading day.
S&P also cut HP’s short-term rating from A-1 to A-2.
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