Hewlett-Packard Co.’s third-quarter profit rose 29 percent after the world’s largest personal-computer maker took market share from Dell Inc. The company also forecast earnings that topped estimates, driving up the shares. Net income increased to US$1.78 billion, or 66 cents a share, from US$1.38 billion, or 48 cents, a year earlier, the Palo Alto, California-based company said Thursday in a statement. Excluding some costs, profit was 71 cents a share, beating analysts’ estimates for the 10th straight quarter. Chief Executive Officer Mark Hurd has revived profit growth by slashing jobs and closing offices, cutting costs by more than US$3 billion. Hurd, who took over in 2005, used the savings to trim PC and printer prices while preserving profit margins. He also benefited from lower component costs and sold more products through retailers, a tactic Dell is now mimicking.
“The turnaround is complete,” said Brent Bracelin, an analyst at Pacific Crest Securities in Portland, Oregon. He rates the shares “sector perform” and doesn’t own them. “This is now a growth story.”
Sales rose 16 percent to US$25.4 billion in the quarter, which ended July 31. Hewlett-Packard in May had forecast profit, excluding some costs, of 64 cents to 65 cents a share on sales of US$23.7 billion to US$23.9 billion. Hurd, 50, has beaten analysts’ profit estimates each quarter since taking over as CEO. This year may be the second in a row in which Hewlett-Packard tops International Business Machines Corp. in sales, and the first time its revenue surpasses US$100 billion.
Profit this quarter will be 80 cents to 81 cents a share, Hewlett Packard said in the statement. The company forecast sales of US$27 billion to US$27.2 billion. Analysts had estimated profit of 78 cents and revenue of US$26.6 billion. “H-P is beginning to show signs of realizing its full potential,” Hurd told reporters on a conference call. “This is really significant growth.” Hewlett-Packard, also the world’s largest printer maker, rose 90 cents, or 2 percent, to US$46.95 in extended trading. The shares had fallen 10 cents to US$46.05 at 4 p.m. in regular New York Stock Exchange composite trading. The stock reached the highest price in almost seven years last week, US$49.84, and has climbed 12 percent this year. Sales at the company’s software division soared 74 percent to US$554 million, fueled by acquisitions of companies including Mercury Interactive Corp. The company’s worldwide PC shipments rose 37 percent in the three months ended in June, while Dell’s fell 4.9 percent, according to Framingham, Massachusetts-based research firm IDC. Hewlett-Packard had the biggest PC shipment growth in 10 quarters, estimates Andrew Neff, a Bear Stearns analyst in New York. After lagging behind Dell in the PC market since 2003, Hewlett-Packard reclaimed the top spot in the third quarter of 2006. Since then, the company has widened its lead. Hewlett-Packard’s PC sales rose 29 percent to US$8.89 billion on a 33 percent jump in shipments. Notebook sales climbed 54 percent, while desktop revenue increased 12 percent. Earnings at the PC unit rose to US$519 million, widening its profit margin, or profit as a percentage of sales, to 5.8 percent from 4 percent.