H-P's sales are lackluster; its stock swings are not
SAN FRANCISCO — Hewlett-Packard shareholders may be in for a wild ride after the company reports fiscal fourth-quarter results Tuesday.
The hardware giant's last three earnings reports have triggered sustained double-digit-percentage price swings in H-P's stock.
In February and May, that was good news, as investors bid up the company's shares amid signs CEO Meg Whitman's turnaround plan was reviving the company's fortunes.
But H-P's August report was a disappointment: The company missed Wall Street estimates after sales fell in all but one of its six business units.
That prompted a one-day stock drop of more than 12% and triggered a two-month share price slide that wiped out one-fifth of the company's market value by early October.
Yet the shares have bounced back. After closing trading last week at just over $25, they've gained almost 70% this year and are now priced almost exactly where they were before that nasty August surprise.
For a venerable technology icon with a market cap of $49 billion, that's some crazy trading action.
The share volatility reflects uncertainty among investors over whether Whitman, who oversaw dramatic growth during her decade-long tenure as eBay CEO, can get the lumbering, 74-year-old H-P growing again.
During her two years and two months in H-P's top job, Whitman has steadied a firm that looked ready to implode after its board ousted her predecessor, Leo Apotheker, after he was widely seen to have overpaid for software maker Autonomy — $10.3 billion in 2011.
H-P is once again operating in the black, earning net income of $3.7 billion for the first nine months of this fiscal year, reversing a massive $5.8 billion loss for the same period a year earlier.
During the same time, the company's operations have generated almost $8.8 billion in cash flow, 35% more than a year ago.
That's allowed H-P to keep paying handsome stock dividends that keep income investors happy.
Whitman has done it by improving the company's efficiency and slashing costs, with operating expenses dropping 18% for the first nine months of the fiscal year. For the quarter ended in July, those expenses were 34% lower.
Yet Whitman has been unable to re-ignite growth, as falling sales of PCs have now spread to related H-P businesses such as printers, services and other hardware.
The Palo Alto, Calif., company has been hurt by a lack of smartphones and tablets as consumers embrace those handheld devices, and by increased competition from Cisco Systems and other hardware makers.
Even H-P's software business, which was posting double-digit annual sales growth when Whitman became CEO, has stalled, with sales rising a mere 1% for the July quarter.
The software meltdown is due in large part to the disastrous Autonomy deal. In November, H-P took an $8.8 billion write-down on the transaction, generating a massive net loss, while accusing the British-based maker of data analytics software of "serious accounting improprieties."
That accounting charge may have been necessary, but the accusation likely didn't help promote confidence among H-P's potential software customers.
Amid a drop in sales of hardware and services to corporate customers — both segments posted year-over-year revenue declines of 9% in the July quarter — Whitman has been promoting H-P's business of hosting other company's data on its servers, a service known as cloud computing.
Last week, she appeared onstage with Marc Benioff, CEO of fast-growing cloud-computing giant Salesforce.com, at the latter company's user conference to announce a new partnership involving H-P servers.
Also last week, a report surfaced that H-P was in talks with Sharp about a partnership that could see the Asian electronics giant producing H-P-branded photocopiers.
Still, it will take time for any new partnerships to help boost H-P's flagging top line.
Analysts expect H-P's fourth-quarter sales fell almost 7% to $28 billion, while sales for the fiscal year dropped nearly 8% to $111 billion.
Wall Street is also pessimistic about Whitman's ability to generate growth in the upcoming fiscal year, with analysts expecting another 3% revenue decline.
Next-year's expectations may well be revised after analysts hear what Whitman and other H-P executives have to say on a conference call Tuesday.
If recent history is any guide, H-P shareholders may want to buckle up before Wednesday's trading begins.