Earnings Reports for Nov. 13

Hewlett-Packard Misses Estimates

Tech heavyweight Hewlett-Packard stunned Wall Street by reporting a big earnings shortfall before the market opened today and said it ended talks to buy the consulting business of PricewaterhouseCoopers.

The stock of the computer and printer maker fell more than 12 percent, weighing down markets in general following last week’s rout, which was spurred by a revenue warning from personal computer maker Dell Computer.

HP shares slumped $5 to $34-1/8, a low unseen since April 1999, helping to pull down the Dow Jones industrial average, which was off about 167 points in afternoon trading.

The Palo Alto, Calif.-based company reported fourth-quarter earnings far short of Wall Street expectations, citing margin pressures, adverse currency effects, higher-than-expected expenses, and business mix.

Hewlett-Packard Chairman, President and Chief Executive Officer Carly Fiorina said she was “very disappointed that we missed our [earnings per share] growth target this quarter due to the confluence of a number of issues that we now understand and are urgently addressing. I accept full responsibility for the shortfall.”

Hewlett-Packard also said it had terminated talks to buy the consulting business of PricewaterhouseCoopers.

The news of its earnings shortfall surprised Wall Street, which did not expect the company to report its fourth-quarter results until after the close of the market today.

Hewlett-Packard reported fiscal fourth-quarter earnings per share of 41 cents, excluding investment and divestiture gains and losses, the effects of stock appreciation rights and balance sheet translation, and restructuring expenses. Analysts had been expecting 51 cents per share, according to research firm First Call/Thomson Financial.

Including these items, the computer maker earned 45 cents per share on about 2.05 billion shares of common stock and equivalents outstanding. This compares with 36 cents in the same period 1999, adjusted for expenses related to the spin-off of Agilent Technologies and the incremental effect of a stock appreciations rights plan.

In regard to the planned $18 billion acquisition of PricewaterhouseCoopers’ service arm, Hewlett-Packard said the two companies were unable to reach a satisfactory agreement given the current market environment.

“We are no longer confident that we can satisfy our value creation and employee retention objectives — and I am unwilling to subject the HP organization to the continuing distraction of pursuing this acquisition any further,” Fiorina said in a statement. “We remain committed to aggressively growing our consulting capabilities, organically and possibly by acquisition, and are open to other business arrangements to achieve our goals.”

For the fourth quarter, net revenue reached $13.3 billion, compared with $11.4 billion in last year’s fourth quarter. Net revenue in the United States grew 13 percent to $6 billion and outside U.S. revenue rose 20 percent to $7.3 billion.

European revenue was $4.5 billion, up 15 percent; Asia Pacific, revenue reached $1.9 billion, up 36 percent; and revenue in Latin America rose to $0.6 billion, up 11 percent.

The company’s imaging and printing systems segment — laser and inkjet printing, and imaging devices and associated supplies — grew 6 percent in revenue year over year. Operating margin was 13.4 percent, up from 13.2 percent last year.

Revenue in the computing systems segment — which includes workstations, desktops, notebooks, mobile devices — grew 29 percent in compared with last year. Operating margin was 3.7 percent, up from 3.2 percent last year, but down 7.3 percent in the third quarter.

Information technology services — hardware and software services, along with outsourcing, consulting and customer financing services — grew 15 percent in terms of revenue compared to the same period last year, while operating margin was 7.4 percent, essentially flat with 7.5 percent last year.

For the 2001 fiscal year ending Oct. 31, 2001, Hewlett-Packard said it expects revenue to grow by 15 percent to 17 percent compared with the 15 in the fiscal year 2000 it just completed.

The company said it expects gross margin percentage in fiscal 2001 in the range of 27.5 to 28.5, compared to 28.5 percent in fiscal 2000, with improvements beginning in the second quarter. Total operating expenses in fiscal 2001 are expected to be between 10 percent to 12 percent above fiscal 2000. The company also said it expects its tax rate is expected to remain constant at about 23 percent. BACK TO TOP

The results were in line with estimates from analysts surveyed by First Call/Thomson Financial.

Revenue increased 12 percent to $3.41 billion in the third quarter, from $3.05 billion from the year-ago period.

Sales at stores open at least a year were down 8 percent, compared to a 5 percent increase a year ago.

“Third quarter was very challenging,” said Millard Drexler, Gap’s president and chief executive officer. “We’re moving quickly to fix our problems and make sure we execute more consistently.”

For the nine months ended Oct. 28, Gap earned $605.7 million, or 69 cents per share, on revenue of $9.09 billion. In the year-ago period, Gap earned $713.2 million, or 79 cents per share, on revenue of $7.78 billion. BACK TO TOP

Kmart Disappoints the Street

Kmart, the No. 3 U.S. retailer, reported today a third-quarter loss that was worse than Wall Street forecasts, as results were hurt by inventory liquidation, which cut into regular sales.

Kmart said it had a loss of $67 million, or 14 cents a diluted share, compared with a profit of $27 million, or 5 cents a diluted share in the same quarter a year-ago.

Analysts polled by First Call/Thomson Financial had expected the discount retailer to report a loss of 10 cents a share.

Sales in the quarter rose 3 percent to $8.20 billion, compared to a year ago.

Kmart, battling fierce competition from other discounters like Wal-Mart Stores Inc., said in July it would close 72 stores and take a $740 million pretax charge to cover the closures and make inventory adjustments. At that time, the company warned earnings for the year would fall below expectations. BACK TO TOP


The Associated Press and Reuters contributed to this report.