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HP Drops on Weak Guidance

Stocks in this article: HPQ

This story has been updated with conference call comments from HP CEO Léo Apotheker and CFO Cathie Lesjak.

PALO ALTO, Calif. ( TheStreet) -- Though sales of servers, storage and networking gear boosted HP's (HPQ) profit above what Wall Street was expecting for its first-quarter results, shares of the No. 1 PC maker were tanking in the after-hours session Tuesday because of weak guidance.

HP brought in revenue of $32.3 billion, up from $31.2 in the same period last year but just below analyst estimates of $32.95 billion. Excluding items, HP earned $1.36 a share, compared to $1.07 a share in the prior year's quarter. Analysts surveyed by Thomson Reuters were looking for earnings of $1.29 a share.

HP CEO Leo Apotheker
HP, led by CEO Leo Apotheker, has reported its first-quarter results.

HP shares, however, were dropping more than 12% to $42.39 in extended trading. HP said that it expects revenue between $31.4 billion and $31.6 billion, compared to analysts' forecast of $32.59 billion. Excluding items, HP expects earnings between $1.19 a share and $1.21 a share, compared to Wall Street's forecast of $1.25 a share.

Speaking during a conference call with journalists after market close, HP executives noted ongoing weakness in the consumer PC market.

"We continue to remain cautious about the consumer spending environment, especially for PCs," said Cathie Lesjak, the HP CFO, in response to a journalist's question.

HP is also working to improve its short-term services signings, according to Lesjak, who said that that the company's services business has lagged behind its traditional seasonal performance.

"We have isolated areas that we want to improve," said HP CEO Léo Apotheker. "I am convinced that we have the core strength to deliver - I am confident in our future."

The tech bellwether grew its gross margin by 1.5 percentage points year-over-year to 24.4% during the first quarter, which Apotheker cited as a major positive. " The gross margin expansion allows us to invest for future growth," he said.

HP, which competes with IBM (IBM) and Dell (DELL), said that first-quarter revenue from its enterprise storage, servers and networking division grew 22% year-over-year.

-- Written by James Rogers in New York.

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