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HP Posts Q4 Sales Below Expectations; Guidance Weak

Currency effects took a toll.

Hewlett-Packard’s fiscal fourth-quarter earnings missed Wall Street’s estimates, and its shares fell by more than one percent in after-hours trading.

The company earned $1.06 per share on revenue of $28.4 billion. Analysts had forecast $1.06 per share on sales of $28.8 billion, down more than two percent from a year ago.

HP said it expects earnings in the current quarter of 89 to 93 cents a share, compared to a consensus view of 93 cents.

Total revenue for the year was $111.5 billion, down one percent year-on-year or flat on a constant currency basis. In an interview with Re/code, CEO Meg Whitman said she was pleased with holding the line on revenue. “We’ve stabilized the company with flat revenue, which is not what we aspired to when we started the year, but when you consider from whence we came, it’s pretty good,” Whitman said. Annual sales at HP have fallen by nearly $16 billion since its 2011 fiscal year.

Whitman blamed about half of the revenue miss on currency effects, which occur when U.S. companies who do business overseas are paid in local currency that is converted back to U.S. dollars, thus reducing the amount of revenue a company takes in. Whitman said the dollar strengthened against other currencies like the Japanese yen quickly during the quarter, making it difficult to enact hedging strategies that could limit that impact. “Currency can always have a big effect on a large company like ours, and when it moves so fast like that there’s almost nothing you can do to hedge against it,” Whitman said.

On a conference call with analysts, CFO Cathie Lesjak said the currency effects will continue into 2015, and may reduce revenue by two percent.

About the progress of HP’s impending split into two companies, Whitman said a “transition office” has been fully staffed with as many as 500 people whose job will be to focus specifically on the split. She said she expects the process to be complete by this time next year, though it could possibly slide into 2016.

“Our objective would be to have it completed by the time we close fiscal 2015,” she said. “We’ll know a little more about the timing during the first or second quarters.”

Asked during the conference call about the possibility of mergers or acquisitions before the split, Whitman said, “We still remain interested in acquiring assets that are the right thing for HP Inc or Hewlett-Packard Enterprise. That said, we’re not going to do things that aren’t good for shareholders.”

Here are a few quick highlights from the earnings report:

  • PC sales were $8.95 billion, up four percent from $8.6 billion a year ago. The results were led by PCs sold to businesses, where sales rose seven percent. Sales to consumers fell two percent. PC sales rose five percent on a unit basis.
  • Printing revenue fell five percent to $5.74 billion, down from about $6 billion a year ago. Printing hardware sales fell one percent, and supplies revenue fell seven percent.
  • Combined annual sales for the printing and PC units — the company that, next year, will become HP Inc. — were $57.3 billion versus $56 billion a year ago.
  • In the Enterprise Group, sales in the quarter fell four percent to $7.3 billion versus $7.6 billion a year ago. Sales in every business line fell. Whitman said one reason for the drop was a large sale of servers a year ago to Microsoft related to the Bing search engine, making for a difficult comparison. After backing out last year’s Bing deal, server sales would have grown by nine percent, she said.
  • The Enterprise Services unit — long one of the more troubled parts of the company — posted revenue of $5.5 billion, down seven percent from $5.9 billion a year ago.
  • Combined sales for the year for the units that will become Hewlett-Packard Enterprise was $54.2 billion, compared to $55.6 billion last year.
  • Profits for the full year were $3.74 per share, at the high end of HP’s guidance for the year and one cent above the consensus view.

A few other facts of note from the press release. HP exited the quarter with $15.5 billion in cash. It also bought back $750 million worth of its shares. This is important because it’s a definitive signal that it is no longer in any discussions concerning a big merger or acquisition. During the last couple of quarters, HP had paused buying back its shares because it was, in the words of Lesjak, “in possession of material non-public information.” We now know it was talks about a possible merger with EMC, talks that ultimately came to naught.

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