HP's (HPQ) Q2 Profit Tumbles 21% But Beats the Street; New Restructuring Effort Will Generate $3-$3.5B in Annual Savings

May 23, 2012 4:59 PM EDT
Hewlett-Packard (NYSE: HPQ) issued a strong second-quarter report on Wednesday afternoon, also offering a boosted FY12 outlook and announcing news of a continued restructuring effort. The stock is being bid up in the after-hours session following a sharp move lower throughout the day.

Quarterly revenue fell 3 percent from $31.6 billion in the same period last year to $30.7 billion, but was up from sales of $30.04 billion in the fourth quarter of 2011. Analysts were expecting HP to post sales of $29.9 billion.

Sales to the company's Personal Systems Group were very slightly higher at $9.45 billion, revenue to the Services segment were down to $8.83 billion, Imaging and Printing sales were down about 10 percent to $6.13 billion and the Enterprise Servers, Storage and Networking unit saw sales fall 5.6 percent to $5.21 billion. HP's Software division saw a solid 22 percent rise to a total of $970 million.

GAAP net income was $1.6 billion, down 31 percent from the prior-year quarter. Pro-forma profit totaled $1.9 billion, down about 28 percent from $2.7 billion in the second quarter of 2011. Adjusted earnings per share were 98 cents, down 21 percent on a year-over-year basis. HP's earnings topped the Street estimate of 91 cents per share.

Non-GAAP operating margin fell 240 basis points to 8.9 percent.

HP's President and CEO Meg Whitman said, "We are making progress in our multi-year effort to make HP simpler, more efficient and better for customers, employees, and shareholders. This quarter we exceeded our previously provided outlook and are executing against our strategy, but we still have a lot of work to do."

HP is expecting third-quarter earnings of 94 cents to 97 cents per share, below the Street estimate of $1.02. For fiscal 2012, the company boosted its EPS guidance from about $4.00 to a range of $4.05 to $4.10. The Street is currently looking for EPS of $4.03.

Likely adding to HP shareholders optimism after the close, the company offered details of a widespread, multi-year "productivity initiative designed to simplify business processes, advance innovation and deliver better results for customers, employees and shareholders." HP said it will remove some 27,000 employees by 2014, or about 8 percent of its global headcount. The restructuring will generate annual savings of $3 billion to $3.5 billion. Click here to see full details of the initiative.

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