At Hewlett-Packard, Hurd Comes Through Again

Earnings beat estimates; the hardware giant raises guidance.
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Updated from 4:22 p.m. EDT

Hewlett-Packard

(HPQ) - Get Report

shares jumped to an 18-month high late Tuesday as the technology giant posted better-than-expected results due to a resurgence in its personal computer unit.

H-P topped earnings targets for its fiscal third quarter and issued an earnings goal above estimates for the fourth quarter, as profits in its PC group improved from the previous quarter and the same period last year.

Higher-margin notebook computer sales accounted for the improved performance in its PC group.

As for H-P's main profit center -- its printing and imaging unit -- the impact of a price war continued to wear on the unit as hardware sales to consumers dropped almost 20%. Operating profit margin in the unit, however, did improve slightly.

Shares jumped 7.3% to $25.41 in recent late trading Tuesday after closing the regular session down 1.7% to $23.68.

The company reported net income of $73 million, or 3 cents a share, on sales of $20.76 billion. During the same quarter last year, H-P earned $586 million, or 19 cents a share, on sales of $18.89 billion.

Excluding charges for repatriated earnings, amortization and restructurings, H-P earned 36 cents a share. The company paid a $788 million income tax bill related to foreign-based repatriated earnings. This accounted for the bulk of its third-quarter charges.

Analysts expected earnings excluding charges of 31 cents a share on sales of $20.47 billion, on average, according to Thomson First Call. At the quarter's start, H-P predicted earnings excluding charges between 29 cents and 31 cents a share and sales between $20.3 billion and $20.7 billion.

Business Units

Imaging and printing operating earnings were $771 million on sales of $5.91 billion. In the same quarter last year, the unit booked an operating profit of $836 million and sales of $5.65 billion. From the previous quarter, consumer hardware sales dropped 17% and supplies revenue slid 6%. The unit's operating margin improved to 13% from 12.7% in the previous quarter but down from 14.8% in the same quarter last year.

The personal systems group's operating profit jumped to $163 million on sales of $6.39 billion vs. a $23 million operating profit and sales of $5.9 billion in the same quarter last year. From the previous quarter, desktop sales fell 5% and notebook sales rose 9.3%.

Enterprise storage and servers operating profit was $150 million on sales of $4 billion, compared with a $211 million operating loss on sales of $3.33 billion during the same quarter last year.

Operating profit for services shrunk to $256 million on sales of $3.84 billion vs. a $314 million operating profit and sales of $3.48 billion during last year's third quarter.

For the fourth quarter, H-P predicted earnings excluding charges between 44 cents and 47 cents a share on sales of $22.4 billion to $22.8 billion. This excludes an expected charge of $900 million, or 22 cents a share, for H-P's latest slate of 14,500 job cuts announced in July. Analysts had expected earnings excluding charges of 43 cents a share on sales of $22.67 billion.

"I'm encouraged by what we have achieved to date, and we are focused on driving further performance improvements," said CEO Mark Hurd, according to a statement.