After Two Turbulent Augusts, HP Shareholders Hope for an Uneventful One This Time
Last August was the time that HP announced an $8 billion write-down for EDS, the enterprise services company it purchased years before. It was — before an $8.8 billion write-down for Autonomy the following quarter — the biggest accounting adjustment of its kind in the company’s history.
The August before that was probably the most ignominious earnings/corporate shake-up announcement that HP ever issued. Then-CEO Léo Apotheker announced his intention to spin off HP’s personal computer division as a separate company, shut down the hardware operations of Palm and acquire Autonomy. He also announced that the company had missed its earnings targets. Apotheker was out of a job within a month, and Meg Whitman was the new CEO.
It’s unclear whether or not HP has any big surprises in store this August — it will report its Q3 results tomorrow after the close of markets in New York — but you can’t exactly say that expectations are running high.
Analysts are expecting HP to report per-share earnings of 86 cents on sales of $27.3 billion. If it hits those numbers, sales would be down about eight percent from the year-ago period, while earnings would be down about 14 percent.
And while HP shares have performed better than those of most other companies on the Dow Jones Industrial Average this year — they’re up more than 82 percent from the last day of trading in 2012 — a miss on sales or earnings might undo a lot of that progress and shake the slowly rebuilding confidence of its shareholders.
Rob Cihra, analyst with Evercore Partners, wrote in a note to clients last week that he expects HP to project its third straight revenue decline in fiscal 2014. “But looking at fiscal year 2014 estimates, we think revenues are near certain to decline again by about three percent, and margin pressure likely leaves any hope of EPS growth to more aggressive [share] buybacks,” he wrote.
HP is still coping with declines in its major lines of business — personal computers, printers and servers — while at the same time trying to build up new lines of business in enterprise services and software. Cihra expects declines in PC sales of about 11 percent, and in printing, about two percent year on year.
On the enterprise side, weak server sales should lead to a decline of about 10 percent in revenue in the enterprise business unit. In enterprise services, Cihra said to expect a 10 percent decline, steeper than in the prior quarter, as the delayed runoff from several large deals starts to have impact.
Sales of software, often cited as a small but bright spot within HP, will also be down slightly, in part because HP isn’t buying any software companies — it has been holding off on mergers and acquisitions since Autonomy — and because of pressure from numerous software-as-a-service competitors.
“HP can cut costs and heads but we continue to think it needs ambitious innovation versus managed shrinkage,” Cihra wrote. “Low-power Moonshot servers, higher-end printing and software-defined networks all help but none enough to move HP’s massive needle.”