HP turnaround progressing as profit forecast tops estimates

Taking Root

Sales in Hewlett-Packard’s PC unit fell 7.7% to $8.2 billion during the first quarter, and the “deterioration” will only accelerate in the current quarter, Cathie Lesjak, Hewlett- Packard’s chief financial officer, said during a conference call with analysts yesterday.

Revenue from printers and related supplies declined 5.3% to $5.93 billion. Whitman told analysts she’s encouraged by efforts to price ink cartridges more cheaply for emerging markets, and by a new product called the Officejet Pro X that delivers laser-printer speed and quality using cheaper liquid ink technology.

In enterprise services, where sales were down 7.1% to $5.92 billion, two large customers Hewlett-Packard had expected to leave during the first half of the year delayed that decision.

Challenging Environment

“While the results were clearly better than expected, underlying fundamentals remain challenging for the company,” Abhey Lamba, an analyst at Mizuho Securities USA Inc., said in a note. Lamba has an underperform rating on the shares. “It posted declining year-over-year sales in every category except for desktops and networking.”

Sales of technology outsourcing and consulting services declined less rapidly than the company had forecast, and printers and ink are yielding higher profit margins than in the past, Lesjak said in an interview. A program to cut 29,000 jobs is also bolstering profits, she said.

At a meeting with investors in October, Whitman and Lesjak cut Hewlett-Packard’s earnings forecast for this year, blaming management upheaval and slow updates to key products. Seven weeks later, Hewlett-Packard said it would write down most of the value of the Autonomy acquisition after discovering the unit had misrepresented its sales, sending shares plunging 12% that day.

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