Hewlett-Packard Delivers on Earnings and Guidance in Turnaround

HP’s non-GAAP operating margin rose to 8.5% in the quarter, up from 8.4% a year ago. The company’s GAAP operating margin fell to 5.3% from 6.8%, but that was based on charges that were already known to be coming.

Several other issues stood out here. Third-quarter cash flow from operations was up 36% to $3.6 billion. Inventory was down 1-day to $6.2 billion, and accounts receivable were also down 1-day to 46 days at $14.2 billion. HP spent $582 million of cash during the quarter to repurchase approximately 17.5 million shares of common stock, and the company ended the last quarter with $14.8 billion in gross cash.

HP is now targeting non-GAAP earnings to be in a range of $1.03 to $1.07 per share for the coming fourth quarter. Thomson Reuters has the consensus estimates for the coming quarter as $1.05 EPS and $28.62 billion in revenues, which would compare to the period in the prior year of $1.01 EPS and $29.13 billion in revenues.

Here was a brief breakdown by unit:

• Personal Systems revenue was up 12% year over year with a 4.0% operating margin.
• Printing revenue was down 4% year over year with an 18.4% operating margin.
• Enterprise Group revenue was up 2% year over year with a 14.0% operating margin.
• Enterprise Services revenue was down 6% year over year with a 4.1% operating margin.
• Software revenue was down 5% year over year with a 21.2% operating margin.
• HP Financial Services revenue was down 3%, with a 1% increase in net portfolio assets and a 14% increase in financing volume, delivering an operating margin of 9.2%.

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CEO Meg Whitman said of the turnaround:

Overall, I’m very pleased with the progress we’ve made. When I look at the way the business is performing, the pipeline of innovation and the daily feedback that I receive from our customers and partners, my confidence in the turnaround grows stronger.

Hewlett-Packard shares closed 1% down at $35.12. HP’s stock has a 52-week range of $20.25 to $36.21. Its consensus analyst price target is $36.93, and the highest analyst price target was above $43 on last look.

HP shares were down another 1% at $34.77 in the after-hours trading reaction. Apparently investors would have wanted to see more about this turnaround. After all, shares have screamed higher in the turnaround process.