Hewlett-Packard shares drop on weak Q1 earnings
US tech titan Hewlett-Packard shares plunged on Wednesday as the market reacted to the company’s 4.7% first-quarter drop in revenue, driven by declines in its enterprise software business and flat PC sales.
Hewlett-Packard Co.
$28.41
11:10 07/05/24
HP, which plans to split into two companies later this year, said that Q1 revenue of $26.8b was down from the $28.2b from the same period last year. On the whole, group sales fell below analyst expectations of $27.4b and group profits fell nearly 4% to $1.4b, or 75 cents per share.
The primary driver behind the poor performance was a drop in sales for the company’s business services unit, which fell 11% in the fourth quarter to $4.9b. In its PC business, sales were flat as the rise in cloud computing services chips away at sales and earnings from traditional storage equipment and hardware.
Even more worryingly for HP, the strength of the US dollar, on the back of an improving an American economy, would cut about $3.3b more off its expected annual revenue than the company estimated three months ago.
As result, the company cut its earnings guidance on the currency effects, expecting free cash flow guidance for 2015 of $3.5bn to $4bn from $6.5bn to $7bn previously. The group also reiterated its plans to cut 55,000 jobs by the end of this fiscal year.
Bank of America Merrill Lynch maintained a buy rating on the stock and a price objective of $45.00. The bank said that despite the cut to free cash flow in 2015, “we expect full year 2016 free cash flow to be at least $1.4bn higher” on decline in separation related costs, tax recovery and tail-wind from lower restructuring charges.
HP also said it planned to increase prices and cut company costs to offset about half the revenue hit from the rising dollar but is expected to incur about $2bn in costs over two years related to the split. One company will primarily focus on business computing products, like servers, while the other will have products for business and consumers, like PCs and printers.