H-P All Clear, But Traders May Want More

Hewlett Packard (HPQ-NYSE): $0.65 EPS and $25.1 Billion revenues.
Estimates were $0.62 EPS & $24.3 Billion revenues.

Second quarter FY07 GAAP EPS is expected to be in the range of $0.57-0.58, and non-GAAP diluted EPS is expected to be in the range of $0.63-$0.64 on revenues of $24.5 Billion; estimates are $0.63 EPS & revenues $24.1 Billion.  GAAP EPS for 2007 are $2.35-2.40 & $2.60-2.65 non-GAAP EPS and $98-$99 Billion in revenues; estimates are $2.57 EPS and $97.5 Billion.

Personal Systems Group revenue grew 17% year-over-year to $8.7 billion, with unit shipments up 19% on a year-over-year basis. Notebook revenue grew 40% over the prior year period, while desktop revenue declined 1%.  Imaging and Printing revenue grew 7% year-over-year to $7.0 billion.  Enterprise Storage and Servers reported revenue up 5% to $4.5 billion. HP Services revenue increased 5% year-over-year to $3.9 billion.  HP Software revenue was $550 million, an increase of 81% year-over-year, reflecting strong momentum in the Mercury business, HP OpenView growth of 14% and revenue declines of 6% in HP OpenCall; excluding the Mercury acquisition, which closed on Nov. 6, 2006, revenue increased 7% over the prior year period.  HP Financial Services reported revenue of $547 million, an increase of 10% year-over-year.

Going into earnings HPQ shares were up roughly 50% from the year lows of $29.00 and more than 100% from two years ago in the ‘Pre-Hurd Turnaround’days. HPQ’s options were little help since the stock was between strike prices but it looks like the options traders were only expecting $1.00 move either way.  Shares were less than 2% from highs of $43.72.

HPQ will have $500 million in one-time pension charges.  Shares are down modestly at $42.90 from its $43.13 close (up 0.8% ahead of earnings).  This can’t really be picked apart as bad by any stretch, but it looks like after the huge run it has seen that Wall Street is going it continue to overly impress rather than just have small earnings beats at current prices.  This should also mark the end of the DJIA components reporting earnings until April.

Jon C. Ogg
February 20, 2007