HP Q1 2014 Beats Estimates, Turnaround Takes Hold
For a while, it’s been difficult to tell if Hewlett-Packard (HPQ) is managing its losses better or making real progress. But the vendor’s Q1 2014 better-than-expected performance—posting $0.90 per share in earnings to easily beat the $0.84 per share forecast and besting revenue projections at $28.15 billion—gives more indications the company finally may be winding its way out of the woods.
For a while, it’s been difficult to tell if Hewlett-Packard (HPQ) is managing its losses better or making real progress. But the vendor’s Q1 2014 better-than-expected performance—posting 90 cents per share in earnings to easily beat the 84 cents per-share forecast and besting revenue projections at $28.15 billion—gives more indications the company finally may be winding its way out of the woods.
Add that to significantly positive results in its major divisions in Q1 2014 and HP’s long-argued case that it’s on the right road to recovery is gaining credibility. Overall revenue for the period fell by 1 percent year over year, but even that exceeded an expected decline. In a curious twist, if you take away currency conversions the vendor actually posted a miniscule sales uptick for Q1, technically breaking a more than two-year-long quarterly revenue losing streak, which likely prompted muted cheers internally.
What’s more, in an optimistic move, HP also upped the bottom range of its guidance for Q2 to set expectations at between 85 cents and 89 cents a share and, for the year to between $3.60 and $3.75 a share. Cash flow from operations increased 17 percent for the period from last year to $3 billion.
PC, ISS sales gain
HP ended its run of quarterly PC revenue downturns by recording a 4 percent year-over-year gain, increasing business sales by 8 percent to offset a 3 percent slide in consumer sales. Hardware unit sales to businesses rose 6 percent and consumer units perked up by 4 percent. However, HP’s supplies sales, a margin-rich category, fell 3 percent.
Commenting on HP’s multi-year turnaround effort, chief Meg Whitman said on an earnings call that “customers’ needs change and incumbents look to respond. Many of our competitors are now confronting these new realities by making major strategic shifts and exiting significant parts of their business. At the same time HP is more than two years into its work to reposition the company to meet these challenges. We believe this is a competitive advantage.”
In many ways, HP’s Enterprise group now is the bellwether of its makeover. For Q1 it showed a 1 percent tilt upward compared to last year, with x86 server sales up 6 percent and networking revenue climbing 4 percent. Those results counterbalanced a precipitous 25 percent slide in high-end ProLiant servers, a 4 percent fall in technology services and flat storage sales.
Similarly, HP’s Enterprise Services fell 7 percent from last year, with application and business services sliding 4 percent and infrastructure outsourcing dipping by 9 percent. HP fared no better in software sales, posting a 4 percent slip from last year, as licensing revenue fell 6 percent and professional services slid 12 percent. A bright spot was a 6 percent climb in SaaS revenue over last year.
“It’s a battle,” Whitman said. “It’s a knife fight every single day out there, but we feel we’ve got the right ammunition.” (Talk about mixing your metaphors.)
Along those lines, Whitman said HP can benefit from customers’ uncertainty surrounding rival Lenovo’s purchase of IBM’s x86 business, suggesting they worry that “as a change of ownership occurs, is the roadmap the same, is the investment the same, is the market to be the same, is the service going to be the same?”
Until the IBM Lenovo deal closes, HP has a “near-term opportunity here to gain share in our enterprise services or in our server business,” she said, “So we are all over it.”
Whitman rarely mentions direct competitors by name, but Lenovo’s added heft now makes it a different matter entirely. “In the long term, obviously, Lenovo is going to be a powerful competitor and we aim to be well set-up by the time the deal is done to compete really aggressively,” she said.