Hewlett Packard Inc. HPQ posted its quarterly earnings of 49 cents per share for the quarter ended on October 30th, overall surpassing EPS estimates four times consecutively over the last four quarters. But its shares dropped 4 percent due to lower-then-expected fourth quarter revenue.
Fourth Quarter Earnings Report
Unlike EPS, the company wasn't able to beat consensus revenue estimates over the last four quarters. For the quarter ended on October 30th 2019, revenue amounted to $7.22 billion, with revenues of the comparable quarter last year being $7.95 billion. But revenue is being stabilized during the last three quarters, with total for the fiscal year 2019 being $29.14 billion. That makes a slight 2% year-over-year drop when adjusted for currency and Tier 1 as besides weakening macroeconomic factors, company's management deliberately took actions to realign the company's portfolio as it continues to exit the lower margin Tier 1 server segment.
This allowed the company to increase its R&D spending 10% year-over-year. But analysts expected 7.40 billion in revenues and revenue did fall 9% compared to last year's comparable quarter. The company is also still struggling with longer sales cycles so this is a somewhat mixed earnings report but the company is pleased with its performance.
Outlook
On one side, HP doesn't have an easy job ahead to prove that it can drive sustainable profitable growth as well as value for its shareholders all on its own. On the other hand, it has added about 32% to its shares since the beginning of the year whereas S&P 500's gained 25 %, so it has outperformed the market. Therefore, there's a reason why HP feels it holds a "unique position in delivering outcomes for its customers." The company is very pleased with the performance both in the quarter and the whole fiscal year 2019. The results show its business model is resilient to macroeconomic headwinds as it is able to generate substantial amounts of free cash flow and has laid a strong foundation for years to come.
The company has rejected Xerox Corporation's XRX bid for the second time, showing it is more than self-confident in its value and will not settle for anything less than what it feels it deserves. But Xerox just sent a letter to HP's Board of Directors confirming its intention to engage directly with HP's shareholders. Xerox is aggressively pursuing the idea of the two companies forming an industry leader with enhanced offerings across a complete product portfolio, a leader that is well-positioned to invest in innovation and that is able to generate greater revenue to its shareholders.
It was clear from the very beginning and the first letter that Xerox will not give up that easily and we're about to see how far they are willing to go to pursue this "compelling opportunity".
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