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A Look at Hewlett-Packard's Profitability
Posted by: tyokunbo (IP Logged)
Date: February 25, 2014 09:51AM

Hewlett-Packard (HPQ) provides technological solutions to different types of customers worldwide. Its clients include individual consumers and small-and-medium-sized businesses. It also has customers in the government, health, and educational sectors. Hewlett-Packard has a personal systems segment, printing segment, enterprises services division and a financial services sector. It provides commercial personal computers, web services and support services. Founded in 1939, Hewlett-Packard is headquartered in Palo Alto, Calif.

Numbers at a Glance

In the latest quarter, the company delivered $0.90 in diluted net earnings per share compared to its financial outlook of $0.82 to $0.86 per share. Though the revenue for the company was down 1% for the quarter, it went up slightly in a constant currency. The company delivered a strong cash flow. It generated a sum of $3 billion from operations. As a result of Hewlett-Packard’s focus on driving its cash flow, it recorded a net cash position of $1.7 billion after returning $843 million to shareholders in the form of dividends and share repurchases. It achieved a revenue growth in its personal systems and enterprise group segments. At the total company level, it also achieved a revenue growth for the first time since the second quarter of 2011 on a constant currency basis.

Positive Outlook

In fiscal 2014, the company expects to generate net earnings per share of $3.50 to $3.75. Hewlett-Packard forecasts earnings per share of $0.85 to $0.89 for its second quarter. It plans to return at least 50% of its free cash flow to shareholders in the form of share repurchases and dividends. It also hopes to see a continued traction in key growth sectors like big data. It will invest in disruptive technologies like cadence HAVEn. It also expects to manage its portfolio transition to SaaS.

New Initiatives

In the first quarter, Hewlett-Packard held its Annual Innovation Showcase for its European customers at HP Discover in Barcelona. The company introduced its converged system portfolio. The solution is built for workloads such as virtualization and hosted desktops. It enables clients to go from orders to operations in as little as 20 days.

Hewlett-Packard also introduced new solutions in its converged storage portfolio. They are meant to deliver industry-leading performance. They will also make it possible for enterprises to manage their data in the new style of information technology. These innovations will help to boost the company’s earnings in the coming quarters.

Head to Head

Hewlett-Packard faces stiff competition from Accenture (ACN), International Business Machines (IBM) and Dell. Compared to its competitors, Hewlett-Packard has a competitive advantage because it is more than two years into its work to reposition the company toward new realities in the sector. Its rivals are just now realizing the changing trends in the industry.

Wings Across the World

Hewlett-Packard is a global company. It operates in countries like India, Germany, France, China and many others. Despite the headwinds in its macroeconomic environment, it is gaining more strength.

Western Europe

Hewlett-Packard saw encouraging trends of improved performances in Western Europe in the last quarter. It witnessed signs of stabilization in mature markets such as Germany and France.

Asia

The company’s personal systems group introduced two new mobile devices to the market in India. It was to target opportunities with cost-effective products that play to the company’s strength. Though the revenue in China was flat in the last quarter, Hewlett-Packard saw strength in India. Its Asia/Pacific revenue was $5.2 billion, down 1% on a year-on-year basis but up 5% in a constant currency basis.

On a Concluding Note

Hewlett-Packard is diversified across the major segments of the technological sector. It is therefore in a position to meet changes in the industry. Another remarkable advantage of the company is its strong cash flow. Also, Hewlett-Packard is continuing to innovate and invest in disruptive products. This could bring even more shareholder value in the future. In sum, Hewlett Packard is progressing with its turnaround initiatives. Therefore, it can be said that it will continue to provide returns to investors.



Stocks Discussed: HPQ, ACN, IBM,
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