Shares in Hewlett-Packard shot up 13 per cent on Wednesday as the US computer and printer maker's better than expected third quarter results suggested the group's new chief executive had started to turn the company around.
At least one Wall Street analyst upgraded HP shares and numerous others raised their targets, one day after the company handily beat analysts' third quarter expectations and said it would report higher than forecast earnings for the current period.
The quarter ended July 31 was the first full three-month period under Mark Hurd, who was brought in to turn the company around after Carly Fiorina was dismissed because she was unable to consistently meet profitability goals. "We think CEO Mark Hurd's culture of accountability is beginning to have an effect," said Steven Milunovich, analyst at Merrill Lynch, in a research note.
HP's earnings followed mixed results from personal computer rivals Dell and Gateway, both of which lowered their forecasts based on weak average-selling prices and component-cost pressures. HP, on the other hand, said personal computer earnings improved sharply due to on Mr Hurd's cost cuts and the group's decision not to reduce prices as sharply as its competitors.
HP also reported higher sales in all its other major businesses: corporate computing, printers and services. The company also said it expected to maintain momentum as it continued to restructure.
Mr Hurd in July said HP would cut 14,500 jobs, about 10 per cent of it workforce, and overhaul the group's retirement plan in a restructuring designed to save the company $1.9bn annually and bring costs closer in line with its competition.
The new chief executive, appointed April 1, has made a number of other moves to simplify the company's structure, including splitting up its PC and printing divisions and reorganising the company's sales force.
HP on Tuesday said fiscal third quarter profit fell to $73m, or 3 cents per share, from $586 million, or 19 cents per share, a year ago. That included an adjustment for taxes paid to repatriate $14.5bn in cash from overseas earnings. Sales rose to $20.8bn from $18.9bn.
Not including after-tax adjustments of $988m, or 33 cents per share, relating to the repatriation, HP said it had an operating profit of $1.2bn, or 36 cents per share, up from 24 cents last year. On that basis, HP was expected to earn $895.9m, or 31 cents a share, on sales of $20.5bn, according to Thomson Financial
HP said its profit this quarter would be 44-47 cents per share, not including special items, on sales of $22.4bn-$22.8bn. That compares with analysts' estimates of 43 cents on sales of $22.7bn.
Shares in HP closed up $3.12 at $26.82 on Wednesday in New York.