Acknowledging Increased Risk for Fourth Quarter, H-P Watches Shares Slide

First Call's research director expects more earnings revisions tomorrow, likely putting additional downward pressure on the stock.
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Shares of

Hewlett-Packard

(HWP)

fell sharply in after-hours trading after the company warned late Wednesday that there was an increasing risk that it might miss Wall Street's earnings estimates.

By the time after-hours trading ended, H-P's stock was down more than 12% for the entire day. But the bulk of those losses came before any news emerged about the company.

H-P shares began their sharp slide as regular trading began, dropping 6 5/8 to an intraday low of 70 around 2 p.m. Within 30 minutes,

Reuters

reported that

Merrill Lynch

had reduced its earnings estimate on the stock, the first of several securities firms to do so. The stock ended regular trading at 4 p.m. down 6 1/4 at 70 3/8.

After the stock market closed,

Reuters

reported that H-P acknowledged that it saw an "increased risk" of not meeting fourth-quarter forecasts. The stock then dropped more than 3 points to end after-hours trading at 67.

Steve Pavlovich, director of investor relations at H-P, said the company began telling investors and analysts who called during the day Wednesday that it was at risk of missing analysts' forecasts of 77 cents a share for its fourth-quarter earnings.

"We were simply responding to questions we typically get at this time of the quarter," Pavlovich said, noting that the company's quiet period before releasing earnings begins Monday. "We did not go out and proactively call people."

H-P did not make a formal announcement warning investors about its earnings.

Before Wednesday, H-P had implied that there were problems, but "we didn't say specifically that reaching that number is at risk," Pavlovich said.

Pavlovich said weak sales of the company's Unix servers could put pressure on its fourth-quarter earnings. At a presentation to securities analysts on Oct. 1, Carly Fiorina, president and chief executive of H-P, noted that Unix sales were continuing to underperform, although she noted that "this is not news, it is a long-standing problem."

Two other securities firms,

Robertson Stephens

and

Gruntal

, also cut their earnings estimates after Merrill Lynch did so. Dan Niles of Robertson Stephens cut his estimate to 73 cents a share from 82 cents. And Mona Eraiba of Gruntal cut her estimate to 70 cents a share from 77 cents. A

Reuters

report noted that Eraiba made the changes after talking to company officials.

Despite the public revisions to their earnings estimates, Robertson Stephens and Gruntal had not sent their changes to

First Call/Thomson Financial

by early evening, according to Chuck Hill, director of research for the company, which delivers analysis reports to brokerage customers.

Merrill Lynch sent First Call an intraday note cutting its earnings estimate to 73 cents a share from 78 cents.

Only two analysts had told First Call of their lowered expectations by Wednesday evening, Hill said. One was Merrill Lynch. Citing a nondisclosure agreement, Hill wouldn't identify the other firm.

Hill said that revision came from an analyst who previously had the lowest rating on the stock. That analyst dropped his estimate to 72 cents a share, indicating that other revisions are likely soon, Hill said.

"Tomorrow we're going to have a flood of these," Hill said.