Hewlett-Packard Co.’s fiscal third-quarter earnings beat Wall Street expectations as revenue from computers, services and printers improved amid a major corporate restructuring.
The company’s earnings, however, fell sharply due to one-time tax adjustments from the repatriation of $14.5 billion in foreign earnings.
For the three months ended July 31, H-P earned $73 million, or 3 cents per share, compared with $586 million, or 19 cents per share, in the same period last year.
Excluding $988 million in adjustments related to the cash repatriation, H-P earned $1.06 billion, or 36 cents per share, compared with profit of $728 million, or 24 cents per share, in the third quarter of fiscal 2004.
Sales rose 10 percent, to $20.8 billion, from $18.89 billion in the third quarter of fiscal 2004.
On a pro forma basis, the results beat Wall Street estimates. Analysts were expecting the company to post earnings of 31 cents per share on sales of $20.47 billion, according to a survey by Thomson Financial.
“I’m encouraged by what we have achieved to date, but more hard work is ahead of us,” Chief Executive Mark Hurd said.
For the first nine months of fiscal 2005, H-P earned $1.98 billion, or 68 cents per share, on sales of $63.78 billion. In the same period of fiscal 2004, H-P earned $2.41 billion, or 78 cents per share, on sales of $58.52 billion.
The company said it expects fourth-quarter revenue to be in the range of $22.4 billion to $22.8 billion, with earnings between 44 cents and 47 cents per share. Analysts were expecting 43 cents per share on sales of $22.67 billion.
“I expected to see improvements out of H-P under the new management, but this is more and sooner,” said Cindy Shaw, an analyst at Moors & Cabot Capital Markets. “I thought it would take Mark Hurd a lot longer to show tangible improvements like this.”
The results were announced after markets finished regular trading. Earlier, shares of H-P fell 39 cents to close at $23.70 on the New York Stock Exchange. They gained $1.59, or more than 6.7 percent, in after-hours trading.
Over the past 52 weeks, Palo Alto-based H-P has traded between $16.73 and $25.07.
It’s been a tumultuous year for H-P, a Silicon Valley pioneer that was founded in a garage in 1939.
H-P’s board ousted CEO Carly Fiorina in February and hired Hurd, who was running NCR Corp., in late March. The new chief executive almost immediately started undoing his predecessor’s changes while embarking on his own reorganization.
In recent months, Hurd has annulled Fiorina’s shotgun marriage of H-P’s PC and printing divisions. He also has reorganized the company’s sales force and ended a deal in which H-P resold Apple Computer Inc.’s iPod music players.
The biggest move, however, came in July, when he announced plans to cut 14,500 jobs and overhaul H-P’s retirement plan in a restructuring that he said will save the company $1.9 billion a year and bring its costs closer to its competition.
“We are advancing the work. It is on schedule,” Hurd said Tuesday.
With a products ranging from digital cameras, televisions and PCs to servers, printers and services, some have questioned whether H-P is too big to manage effectively. Hurd has said he is still reviewing the company’s businesses.
But its current strategy leaves the company in a precarious spot. At the high end, it competes with International Business Machines and its strong consulting team. At the low end, it faces the efficiency of Dell Inc.
There are signs that H-P has made progress. Dell, for instance, said last week that low-priced laptops and other bargain PCs contributed to its lower-than-expected guidance. On Monday, Gateway Inc. CEO Wayne Inouye singled out H-P’s aggressive pricing as he lowered his company’s sales and earnings outlook.
H-P’s Personal Systems Group, which includes PCs, saw revenue grow 8.2 percent to $6.39 billion from $5.9 billion in the third quarter of 2004. Operating profits grew to $163 million in the third quarter 2005, up from $23 million the previous year.
Hurd described overall PC demand as “steady” and “stable.” He said notebook revenue grew 21 percent while desktop sales dipped slightly.
“What the company has attempted to do strategically has born itself out in terms of the results you see today,” he said. “This isn’t the first quarter that you’ve seen improved results from PSG. This is a string of improvements over a period of time.”
H-P’s Imaging and Printing Group saw profits fall to $771 million from $836 million in the third quarter of fiscal 2004, but sales increased to $5.91 billion from $5.65 billion.
H-P unveiled a new generation of printers last month. It also recently announced plans to expand the scope of its large-format digital printer business, with the acquisition of Israel-based Scitex Vision for $230 million in cash.
The Enterprise Storage and Servers Group saw sales grow to $4 billion, up from $3.33 billion in the third quarter of fiscal 2004. The division swung to a profit of $150 million in the third quarter, compared with a loss of $211 million last year.
H-P Services revenue grew 10 percent to $3.8 billion, though operating profit fell 18.5 percent to $256 million.