HP tempers profit report with caution
Published: 15 May 2002 09:24 BST
In its last quarter before merging with Compaq, Hewlett-Packard met estimates but warned that the company doesn't expect information technology spending to recover until next year.
"While a muted recovery in the second half is still possible, we are not counting on meaningful improvement in spending until 2003," said chief executive Carly Fiorina in a statement on Tuesday.
The company didn't provide financial results for its future as a combined company with Compaq, saying it would reserve that information for a 4 June meeting with financial analysts.
HP wants sufficient time to explain the projections for the combined company, chief financial officer Bob Wayman said in an interview. "We will provide restated pro forma information (and) lay out time frames of synergies and cost savings," he said of the 4 June meeting.
HP's net income of $252m (£174m) was a 436 percent jump from the $47m in the year-ago quarter. Excluding one-time items, net income increased 48 percent from $336m to $498m, HP said.
However, HP's revenue of $10.6bn was lower than the $11.1bn expected by analysts surveyed by First Call and a 9 percent drop from the $11.7bn in the same quarter in 2001.
HP met profit expectations by analysts, who predicted the company would report earnings of 25 cents per share on a pro forma basis.
The quarter that ended on 30 April was the second of HP's 2002 fiscal year and its last operating quarter as a standalone company before the conclusion of the $19bn merger with Compaq.
In a conference call, Wayman disclosed some of the costs of the merger process. Of HP's $260m in one-time charges in the quarter, $149m were from merger costs, Wayman said.
Of that $149m, "$75m was directly associated with advertisements and proxy solicitation," the result of the drawn-out battle with Walter Hewlett, who spearheaded the effort to convince shareholders to block the merger.
HP's performance was good enough that the company will pay employees bonuses totaling about $220 million, Wayman said. "Because of poor performance in the last year or so, (the bonus program) has not paid out anything to employees. This half, we have performed better -- not where we want to be, but considerably better," he said.
Improvements included better gross margins -- a key measure of profitability -- and HP's cash generation of $2.1bn in the quarter, adding up to a total of $5.5bn over the last three quarters, despite the bad economy. The company now holds $9bn in cash and short-term investments.
HP said weak sales in computers and consulting were offset by sales in printing and imaging and by outsourcing work.
HP has worked furiously to disprove critics who panned the Compaq merger since it was announced more than eight months ago. More recently, some analysts have upgraded HP's stock.
Fiorina in a statement acknowledged the challenges in closing the Compaq deal, but highlighted the company's success in pushing forward.
"In the final weeks of the quarter, 400 senior managers were named to their assignments in the new HP -- and we were involved in a highly visible lawsuit. While there was real potential for distraction, HP delivered," she said.
Goldman Sachs analyst Laura Conigliaro expected revenue from the new HP to be 7.5 percent lower than what the two companies would have garnered separately, though HP has argued it will drop only 5 percent. Offsetting that decline, though, HP expects to save $2.5bn a year through the merger.
HP stock rose 52 cents, or 3 percent, to $20.50 in trading on Tuesday before the results were announced.
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