Dell Inc. beat analysts’ expectations in delayed earnings posted Tuesday, but the computer maker warned the results were preliminary and could change due to an intensifying federal investigation into the company’s accounting and financial reporting.
For the quarter ended Nov. 3, Dell earned $677 million, or 30 cents per share, on revenue of $14.4 billion. That compared with earnings of $606 million, or 25 cents per share, in the third quarter of last year, which was hurt by $442 million in charges Dell took to repair a faulty computer component and costs related to restructuring.
Analysts, on average, had been looking for third-quarter earnings of 24 cents per share on sales of $14.44 billion, according to a survey by Thomson Financial.
Sales of the company’s “mobility products,” including laptops, grew 17 percent from the year-ago period, what sales of desktop PCs actually fell 5 percent because of what Dell termed a “decision to focus on more profitable products.”
In the third quarter, sales of laptops and desktops accounted for $8.6 billion, or 59 percent, of Dell’s revenue, the company said. It did not provide year ago results in its report.
The report was also filed six days later than expected and comes amid a formal investigation of the Round Rock, Texas-based company by the Securities and Exchange Commission.
Dell was expected to file the earnings report Thursday but postponed it because of the “level of complexity the company is facing in the preparation of its preliminary results.”
The company said the delay was unrelated to a widening federal investigation it mentioned in the same news release.
That investigation began as an informal SEC probe in August into unspecified accounting issues. At the time, Dell said it did not believe the investigation would affect earnings. Tuesday’s report wasn’t followed by the usual post-earnings conference calls, where reporters and analysts can directly question founder Michael Dell and Chief Executive Officer Kevin Rollins.
Instead, the earnings report included warnings about the uncertain outcome of the investigations that could show “a material weakness in the company’s internal controls over financial reporting,” the company said.
The company added that in the near-term, “improvement in growth and profitability may not be linear due to a variety of factors, including the timing of continued investments in Customer Experience, global expansion, and new product introductions.”
Dell spokesman Bob Pearson called the results a sign of progress while adding that the company remains focused on long-term growth. He declined to elaborate on the investigation but said comments from executives on any financial issues would continue to be limited.
“The one thing we can do is cooperate with them fully,” he said of the SEC probe.
Dell, which suspended its share repurchase program in mid-September, spent $335 million to repurchase 15 million shares in the quarter.
Last month, Dell lost its No. 1 ranking in personal computer shipments to Hewlett-Packard Co., according to market research firms IDC and Gartner Inc. HP saw its fiscal fourth-quarter earnings quadruple last week on higher sales of laptop computers and printers.
Frank Gillett, an analyst with Forrester Research Inc., said Dell is going to have to make some tweaks to compete, such as expanding its minuscule retail operation to buoy sales of laptops. Gillett said consumers like to pick up and use laptops before they buy, a detriment to Dell’s direct-sales online model.
“They’ve hit the limits of their direct model and they’ve got to figure out where to go now,” he said. “They’re like any other computer company that’s evolved over time. But they’re a solid performer, one of the top two or three PC vendors.”
Two days before reporting disappointing earnings in August, Dell recalled more than 4 million faulty laptop batteries made by Sony Corp. The Japanese company’s batteries have since been recalled by nearly every laptop maker in the world, including Toshiba Corp., Apple Computer Inc. and Lenovo Group Ltd.
In a separate announcement, Dell said it stopped offering mail-in rebates across its U.S. consumer product lines, including laptops, desktops and televisions, to help simplify the buying process. The change was described as part of the company’s $150 million customer service overhaul.
The markets reacted positively to the preliminary earnings, as Dell gained 17 cents to close at $24.82 on the Nasdaq Stock Market. Shares rebounded further in aftermarket trading, gaining another $2.23 to trade at $27.05. Prices have ranged from $18.95 to $33.22 in the past year.