Earnings Scorecard: Hewlett-Packard - Analyst Blog

On May 18, 2010,

(

) reported second quarter 2010 results, with EPS of $1.09, exceeding the Zacks Consensus estimate of $1.05 and the year-ago EPS of $0.86.

Revenue for the second quarter came in at $30.8 billion, an increase of 13.0% from $27.4 billion reported in the year-ago period, which included a favorable foreign currency impact of four percentage points.

Revenue increased across all businesses segments on a year-over-year basis, attributable to increases in product demand, better market penetration and a revival in IT spending. Per geographic region, the Americas reported an 11.0% increase in revenue to $13.5 billion. Revenue increased 11.0% in Europe, the Middle East and Africa (EMEA) to $11.8 billion and 19.0% in the Asia-Pacific region to $5.5 billion.

International markets accounted for 66.0% of total revenue in the second quarter, with revenue in the BRIC countries (Brazil, Russia, India and China) increasing 25.0% on a year-over-year basis and comprising 10.0% of total HP revenue.

The company has projected a decent estimate for the third quarter of fiscal 2010, and expects revenues to be in the range of $29.7 billion to $30.0 billion, a GAAP EPS of $0.87 to $0.89 and non-GAAP EPS of $1.05 to $1.07. For fiscal 2010, the company expects revenue growth in the range of 8.0% to 9.0%. The GAAP EPS is expected to be in the range of $3.76 to $3.81, and non-GAAP EPS in the range of $4.45 to $4.50 (up from the previous estimate of $4.37 to $4.44).

The company has a strong business model, and still rules the computing world, with the largest market share at 19.7%. This apart, the company has completed the acquisition of networking major 3Com. HP will now be able to challenge networking leader

(

), and gain market share in the networking business. This apart, the company is expected to benefit substantially from the increase in IT spending.

We also note that market research firm Gartner raised its 2010 PC shipment forecast, and now expects global PC shipments to rise 22.0% this year, up from its March forecast of 20.0%, attributable to strong consumer demand and companies replacing aging computers. The research firm expects the Worldwide PC shipments at 376.6 million units in 2010, compared with 366.1 million units forecasted in the March quarter and 308.3 million units last year. Global PC spending is forecasted to increase 12.0% to $245.4 billion in 2010. HP is expected to grab a major share of the increase in PC shipment.

HP has also grabbed the top slot in the Server market, generating $3.4 billion in server revenue during the first three months of the current year, up 16.0% compared to the year-ago period. This has pushed International Business Machines (

) to the second position, which saw sales dipping 2.1% to $3.05 billion.

We believe that being the largest player in the computing industry, HP will experience significant improvement in business volume. We completely believe in the growth story of the company, but would like to see better performance from its printing unit in the upcoming quarter.

Over the last 30 days, 10 of the 25 analysts covering the stock have raised their estimates for the third quarter, while six analysts have made downward revisions. Moreover, analysts also revised their estimates for fiscal 2010, with 18 analysts raising estimates, while three made downward revisions over the last 30 days.

Due to the lack of agreement among analysts, the third quarter Zacks Consensus EPS has moved up to $1.07, just 1 cent above the EPS estimated 30 days ago. For fiscal year 2010, the Zacks Consensus EPS has moved up to $4.49, up 4 cents estimated 30 days ago.

The company is well placed and has the requisite resources and infrastructure to serve the market needs and derive benefit from existing customer and supplier relationships, the existing product portfolio, operational efficiency, technical know-how and strong financial resources.

Although we remain positive on the company’s performance going forward, given that demand is improving and the company holds a leadership position in the PC and Server segment, we are not very confident about a substantial improvement in the company’s printing business in the near future, due to availability of cheaper substitutes.

Thus we maintain our Neutral rating on the stock.