HP rises as profit, job cuts buoy optimism for turnaround

May 24 (Bloomberg) -- Hewlett-Packard Co. rose the most in eight months after the world’s largest personal-computer maker announced plans to slice its workforce by 27,000 and reported quarterly sales and profit that topped estimates, buoying optimism for a turnaround.

Profit before some costs in the second quarter, which ended April 30, was 98 cents a share, the company said in a statement yesterday. That compared with analysts’ 91-cent average estimate, according to data compiled by Bloomberg. Sales were $30.7 billion, beating the average projection of $29.9 billion. The shares jumped as much as 12 percent in extended trading.

Chief Executive Officer Meg Whitman is cutting jobs and streamlining businesses as Hewlett-Packard grapples with slower demand for printers, services and data-center equipment, leading to a third-quarter profit forecast that was less than analysts predicted. The 8 percent workforce reduction, taking place through firings and early retirement offers, will generate annual savings of as much as $3.5 billion starting in 2014.

“This is the first step in the recovery process,” said Brian Marshall, an analyst at ISI Group in San Francisco. Shares of other business technology companies such as Dell Inc., NetApp Inc. and Cisco Systems Inc. have declined this month on reports of lower demand, while Hewlett-Packard’s stock has already reflected much of the bad news, he said.

“HP is looking like a good place to park some money,” Marshall said. “Those guys have already been taken behind the woodshed.”


Hewlett-Packard’s shares rose 4.8 percent to $22.09 at 9:36 a.m. in New York, and earlier touched $22.66 for the biggest intraday increase sine Sept. 27. The stock had dropped 18 percent this year before today.

Whitman said the reductions are part of a “re- engineering” of Hewlett-Packard aimed at paring the number of products sold, simplifying pricing and advertising more effectively. She doesn’t expect further job cuts.

“This is quite different from the cost-cutting that Mark Hurd undertook,” Whitman said in an interview yesterday. “This is about fundamental business-process re-engineering.”

Hurd, Hewlett-Packard’s CEO from 2005 to 2010, oversaw a period of rising profit and share price at the company while announcing at least 48,000 job cuts.

PC Sales

Second-quarter PC sales were little changed from a year earlier, while sales of printers and ink declined 10 percent. Revenue from servers, data-storage devices and networking equipment fell 6 percent, and services revenue dropped 1 percent, the company said.

Net income in the period fell 31 percent to $1.59 billion, or 80 cents a share, from $2.3 billion, or $1.05, a year earlier. Sales in the year-earlier period were $31.6 billion.

Whitman, CEO since September, is struggling with a turnaround effort aimed at reducing costs and reversing a sales slump that led to the ouster of her predecessor, Leo Apotheker. She has said the company needs to make its products and services more competitive and spend more on research and product development.

On a conference call with analysts, Whitman said she’s “cautiously optimistic” about the progress Hewlett-Packard has made on her watch.

“Turning HP around is going to be a lot of hard work,” she said. “It’s going to take time.”

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