HP Q2 Results: Good or Bad, Depending on Where You Sit

HP Q2 Results: Good or Bad, Depending on Where You Sit

HP's second-quarter earnings show a continued decline in revenue. Are the company's days numbered?

“It was the best of times; it was the worst of times.” Charles Dickens could have been referring to Silicon Valley bellwether Hewlett-Packard (HPQ) in his timeless novel, "A Tale of Two Cities."

HP this past week released its second-quarter fiscal results and, depending on how you look at it, it was either good news or bad news. Regardless, the company is certainly in a quandary as it tries to grow its cloud and services revenue while relying less on hardware—any hardware.

HP missed its second-quarter sales expectations mark but came in line with analysts’ expectations on earnings, mainly as a result of accelerating cost-cutting. While that is not a good situation to be in, business is business and the long-term financial health of the company is critical.

Specifically, HP reported second-quarter revenue of $27.3 billion. This is slightly down from the year-earlier period. Printing revenue fell 4 percent year over year, accelerating its decline from the first quarter when it dropped 2 percent from the previous year’s period. Enterprise hardware dropped 2 percent from the second quarter of 2013 and enterprise services also continued its decline, falling 7 percent.

Ironically, PC sales for the second quarter rose 7 percent, mainly through commercial growth, but that is not where the company’s future business lies. Meanwhile, financial services revenue only dropped 2 percent compared to a 9 percent drop in the year-ago period, showing that business has stabilized or bottomed out.

HP also said its high-margin printing supplies revenue fell 7 percent, while printing hardware units rose 1 percent. In enterprise hardware, a 6 percent drop in storage and a 14 percent drop in business critical systems offset a 6 percent increase in networking.

We get it. Revenue across the board is moving in the wrong direction. However, to try and offset these business declines, HP said it is increasing the size of its jobs cuts by 11,000 to 16,000 positions. The company had 317,000 employees last year and had already announced plans to reduce its workforce by more than 10 percent or 34,000 jobs.

Also helping meet its earnings per share target, the company said it spent $813 million on stock buybacks.

The good news is HP is still investing in R&D, with spending rising 7 percent in the second quarter to $87 million. The bad news is that its selling, general and administrative expenses also rose, albeit slightly, to $3.39 billion.

After releasing its second-quarter results, HP continued to try and appease Wall Street by saying its cost-cutting will lead to earnings per share of between 86 cents and 90 cents for the third quarter. Analysts are expecting around 89 cents for the period.

So even though the company is working feverishly to meet the profit demands of its investors, its revenues are not going in the right direction. It is continuing to pump money into research and development, however. Some believe this is an opportunity. Others believe the company’s heyday is over.

In my mind, the jury is still out.

Knock 'em alive!

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