Hewlett-Packard’s Q2 results are old news, because the company pre-announced them last week. During the call HP (HPQ) noted that it’s going to beat its cash flow estimates for the year, but the market doesn’t seem to know what to make of HP right now, and shares are more less flat in the aftermarket.
SAI Spreadsheet: HPQ Financial Analysis
Conference Call Notes:
5:02: Music playing. Call has yet to begin…
5:05: Call begins. Usual introduction and disclaimers about forward looking statements…
5:07: Mark Hurt: “Stong quarter,” “strong in every respect.” Hurt expects merger with EDS to help with market coverage problem with Enterprise accounts. Cost synergies “are significant.”
5:09: “70% of revenue and all of our growth” from overseas.
5:12: Personal Systems post solid results. Revenue up 16%, units up 21%. “balanced growth.” Consumer up 16%, commercial up 17%.
5:14: India and China posted strong growth as segments grow out infrastructure.
5:16: HP services had “solid quarter.” operating profit $508 million. 11% of revenue. Rebalancing of personnel offset strong growth.
5:17: HP inventory down 2 days from a year ago. Days sales outstanding increased to 42 days from 41 days a year ago. PPE up $567 million yoy, down as a percentage of revenue. Capex down 7% from a year ago.
5:19: Outlook: Q3 revenue guidance unchanged, “in-line with seasonality”… results may be affected by forex. Component pricing to be “less favourable” in Q3. Expect to continue to repurchase shares. Q3 EPS guidance unchanged. Increased FY08 guidance reflects “strength of business model.”
5:20: Q&A begins… Lehman analyst asks about weakness in Europe, and for colour on PC market… Answer: Europe was strong for us, up 16%… now 42% of business. Had a pretty “normal quarter.” Quarter “behaved as we would have expected.”
5:26: Bernstein analyst asks for colour on macro picture. Notes downturn in US… Answer: “That we can have flattish performance in US and grow company by 11% shows how well we are positioned.” “We pick our spots.” “US was spotty.” Had some positions in US that were positive.” “Wasn’t all bad.”
5:30: Bank of Montreal analyst asks about ink jets and US economy… Answer: Ink jets look “strong.” Demand “better.” “Saw no material change in ink jet in the US.” “Us is not all bad. It’s spotty. Different by geography and segment. It’s a mixed bag.”
5:34: Raymond James analyst asks about commerical revenue growing faster than consumer, will mix shift continue, and given different contribution margins, will this represent a headwind? Answer: “You’re connecting dots I wouldn’t connect. Feel good about quarter.”
5:38: Goldman analyst asks about slowing growth in Asia… Answer: “We felt good about Asia. Felt good about demand.”
5:45: Morgan Stanley analyst asks about currency hedge losses… Answer: Currency losses come from hedging balance sheet outside of U.S… big chunk of loss comes from difference in interest rate differentials, not from revenue hedging. Shows up on balance sheet, but not clear on P&L.
5:50: Bank of America analyst asks about different channel trends in Europe… Answer: “Don’t like to speak for our partners.” “We saw a strong Europe.” What HP calls “Europe” actually includes Middle East and Asia. So there are both mature and emerging markets included in this segment. “There was strength across all segments.”
Hewlett-Packard (HPQ) reports Q1 after the bell. The company has already announced stronger than expected revenue and EPS, so the important information will be colour on the conference call. The conference call is scheduled for 5PM ET. We will be covering the call with live analysis here.
HP had originally scheduled its conference call for last Thursday, but pushed it back following its announcement of its intended purchase of Electronic Data Systems (EDS). HP will pay $25 per share in a $13.9 billion deal designed to boost HP’s service revenue and help it compete with IBM.
HP has so far weathered economic weakness that has felled other bellwethers, and its preliminary results suggest it has done so this quarter as well. HP released preliminary results last week and said that it earned revenue of $28.3 billion (vs. $27.7-$27.9 guidance) and $0.87 of non-GAAP EPS.
Key colour on call will be the impact of economic weakness (if any), as well as shifts in margins and product mix.
- Revenue: $28.3 preannounced. Guidance was $27.7 billion – $27.9 billion
- EPS: $0.87 pre-announced vs. $0.85 consensus. Guidance was $0.83-$0.84.
- Outlook: Q3 Revenue guidance $27.3-$27.4 billion (consensus $27.35). EPS $0.82-$0.83 (consensus $0.82). 2008 consensus: Revenue $114.2 billion; EPS $3.54 2009 consensus: Revenue $120.3 billion; EPS $3.93
- Q3 Revenue guidance $27.3-$27.4 billion (consensus $27.35). EPS $0.82-$0.83 (consensus $0.82).
- 2008 consensus: Revenue $114.2 billion; EPS $3.54
- 2009 consensus: Revenue $120.3 billion; EPS $3.93
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