Reminder: Hewlett-Packard will split in November: Expect a review
PALO ALTO, CA: Hewlett-Packard disappointed on revenue on Thursday as PC and printer sales remained weak in the third quarter, but it beat earnings expectations as it prepares to split into two Fortune 50-sized companies at the beginning of November.
Meg Whitman, chief executive, said HP was now in the “final stretch” of the separation. It had been operating as two companies with separate financial systems, capital structures and supply chains since the start of August.
Ms Whitman will embark on a roadshow, kicked off by an analyst meeting in mid-September, to sell the two new companies to investors. HP will separate into Hewlett-Packard Enterprise, a corporate IT solutions business led by Ms Whitman, and HP Inc, focusing on personal technology and printing under Dion Weisler and with Ms Whitman as chairman.
“The separation is a springboard for these two companies to launch into two different markets with the right capital structure and leaner costs — but each has more to do,” she told the Financial Times.
The former eBay chief executive became the head of HP almost four years ago, promising a turnround within five years. She said the separation also meant the “clock starts again, with new guidance, new leadership teams and a new board of directors”.
Ms Whitman said she intended to stick around “for a while” to get both companies off on “two really good sets of trajectories”.
In the third quarter, HP’s revenue of $25.3bn missed the consensus forecast of $25.4bn, coming in 8 per cent lower than the same period a year before or 2 per cent on a constant currency basis.
Revenue in personal systems and printing, divisions which will be pushed into HP Inc, fell. Sales of personal technology to consumers were down 22 per cent, as fewer shoppers buy desktop computers, while sales of printers and printing supplies to businesses each fell 6 per cent as Japanese competitors took advantage of the weaker yen.
The company issued guidance lower than Wall Street expected, estimating non-GAAP diluted earnings per share to be in the range of 92 to 98 cents in the fourth quarter — excluding costs including the bill for separating the two companies — and GAAP earnings per share of between 12 and 18 cents. For the full year, HP estimates diluted non-GAAP earnings per share of between $3.59 and $3.65.
The company reported earnings per share of 88 cents on a non-GAAP basis, compared with an average analyst estimate of 85 cents per share. Net earnings were $854m, a drop of 13 per cent from the same quarter the year before.
Ms Whitman said the results reflected the “very strong performance” of the enterprise group and “substantial progress” turning round the enterprise services division. Revenue from servers and networking increased in the quarter.
She also said that the Chinese server business, which HP is in the process of spinning off into a joint venture with Tsinghua University, had enjoyed a good quarter, which she attributed at least in part to the announcement of the deal.
Shares, which have fallen 32 per cent this year, fell 3.4 per cent to $27.36 in after-hours trading in New York.