Hewlett Packard released its quarterly earnings yesterday. The reported operating numbers were $1.17/share, beating the consensus estimates by $.04. What we don’t see in this headline number are around $2bln in net charges related to poor management decisions over the past half decade. Specifically, HPQ took goodwill impairment charges of $885mln related to their PALM and WebOS purchase, as well as $788mln in charges to close out inventory and contractual obligations to suppliers. After charges Hewlett Packard reported a measly $.12/share of net profits. Hear is a performance summary of what HPQ reported.
With the recent shake-up in top management at the company, the street was eager to hear forward looking strategy from new CEO, Meg Whitman.
Hewlett Packard will curtail future acquisitions and circle the wagon on its core product offering. The result will be lower acquisition expenditures, higher R&D spending, slower growth but a more stable future. Expect street earnings guidance for FY12 to drop from $4.55/share to $4.00.
As bad as the report was on the bottom line, there are reasons to be optimistic. The street will be watching the performance of the new management team. HPQ must prove it can secure a stable product line, slowly grow their services through intelligent acquisitions and step forward from the poor decisions of the past. If Meg Whitman can execute her plan, I do believe this stock has the potential to rise back above $40/share. Their balance sheet shows $31bln in debt, $8bln in cash and they have proven the ability to throw off over $8bln annually in free cash flow. Growing earnings at 3.5% from a stable base of $4 will allow Hewlett’s multiple to climb.
Let’s hope the write-offs are ending and Hewlett Packard can again move forward. Meg Whitman is attempting to reduce the future uncertainty for her company which would seem to be exactly what the doctor ordered.