HP's third-quarter results were boosted by tax benefits, but the company also exceeded analysts' expectations for revenue on strong server sales growth.
Revenue was $20.8 billion, up 10 per cent from last year's third-quarter revenue of $18.9 billion. Analysts surveyed by Thomson First Call had expected HP to record $20.5 billion in revenue.
Net income based on generally accepted accounting principles (GAAP) was $73 million, down 88 per cent from last year when HP recorded $586 million in GAAP net income. However, HP brought $14.5 billion in foreign earnings back to the US to take advantage of a recently enacted tax break. That increased HP's net income by $988 million to $1.06 billion, or $0.33 per share.
$1 billion to restructure business
HP also recorded $112 million in restructuring charges during the quarter to account for layoffs in its printing group. Late in the quarter, HP announced a much larger restructuring program that will put 14,500 employees out of work. The company will record a charge of around $900 million in its fourth quarter to account for costs associated with those layoffs.
On an operating basis, HP's income increased in this year's third quarter compared to last year's, thanks to its PC and server groups, said CEO Mark Hurd.
Most of the HP’s profits have come from its printer group in the last few years, but that division actually saw profits slip in the third quarter.
Printer shipments climb, revenue declines
The Imaging and Printing Group posted $771 million in operating profits, compared to $836 million in last year's third quarter. HP has been pricing its printers to increase its hardware shipments, and that strategy reduced operating profits, Hurd said. But increases in printer hardware shipments generally lead to increases in sales of printer supplies such as ink and paper, which are much more profitable than sales of the actual printers themselves.
Printer revenue grew only 1 per cent compared to last year, but printer shipments were up 8 per cent, HP said. Shipments of colour laser printers and multifunction printers were up strongly at 31 per cent and 67 per cent, respectively.
The Personal Systems Group, which develops and sells PCs and handheld devices, improved its revenue by 8 per cent over last year to $6.4 billion in the quarter. Unit shipments increased by 14 per cent, and the group's operating margin of 2.6 per cent, although low by relative standards, was the group's best performance since HP acquired Compaq, Hurd said.
Revenue from low-end servers increased 28 per cent in the third quarter, leading HP's servers and storage group to $4 billion in revenue, a 20 per cent increase compared to last year. This group swung to a $150 million operating profit in the quarter, up from a loss of $211 million last year. Its operating margin was 3.8 per cent of revenue.
HP expects fourth-quarter revenue to come in between $22.4 billion and $22.8 billion.