Hewlett-Packard Company Earnings: A Solid Quarter as Separation Nears

By Markets Fool.com

Hewlett-Packard Co. might have technically just turned in mixed quarterly results, but the stock's 3% spike today (as of this writing) makes clear the market is more than pleased with the tech behemoth.

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For HP's fiscal 2015 second quarter, revenue fell around 7% year over year (down 2% on a constant-currency basis) to $25.5 billion. That translated to adjusted earnings of $0.87 per diluted share, down a penny from the year-ago period and near the high end of its previous guidance.The company also spent a whopping $659 million during the quarter to repurchase roughly 19 million shares of common stock in the open market. Analysts, on average, were expecting earnings of just $0.86 per share, but on slightlyhigher revenue of $25.6 billion.

Digging deeper
Driving HP's results were broad declines from each of its operating segments. That includes a 5% decrease in personal systems revenue, driven by a 7% fall in commercial revenue and a 2% drop in consumer sales. In all, total personal systems units actually climbed 2%, helped by a 19% year-over-year rise in notebook units but undercut by a 14% fall in desktops.

Meanwhile, printing revenue fell 7% year over year. Total printing hardware units fell 4%, with commercial hardware up 1% and consumer units down 6%. Software revenue also fell 8%, including decreases in revenue of 17% from licenses, 2% from support, 15% from professional services, and 5% from HP's software-as-a-service business. Sales from HP's enterprise services also declined 16%.

On a more encouraging note, revenue from HP's enterprise group fared better, falling only 1% year over year. For that, investors can thank an 11% increase in sales from the industry standard servers business, offset by declines of 8% in storage, 15% in business critical systems, 16% in networking, and 8% in technology services. Hewlett-Packard also closed its $2.7 billion acquisition of Aruba Networks earlier this month, which should help bolster the enterprise group's position in the enterprise mobility space.

Finally, HP's financial services segment revenue fell 7% year over year, including a 2% decrease in net portfolio assets and a 1% decline in financing volume.

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Looking forward
Those declines might sound unattractive, but they weren't far off from the market's expectations. Arguably most encouraging was HP's guidance and revised information regarding its impending business separation. Hewlett-Packard will soon split into two distinct entities: "Hewlett-Packard Enterprise" will contain its enterprise, software, cloud, and services businesses. "HP" and will include Hewlett-Packard's current personal systems and printing segments.

According to Hewlett-Packard CEO Meg Whitman, the separation remains on track to be completed in November, and the company anticipates associated "dis-synergies" of roughly $400 million to $450 million. Hewlett-Packard also announced several new executive leadership appointments ahead of the separation. Current HP Chief Financial Officer Cathie Lesjak will become CFO of HP, while enterprise group CFO Tim Stonesifer will assume the same post at Hewlett-Packard Enterprise. In addition, company Senior Vice President Chris Hsu will become chief operating officer at Hewlett-Packard Enterprise, while Boeing'sformerhead of human resources, Alan May, will join Hewlett Packard Enterprise as Head of Human Resources.

For the current quarter, Hewlett-Packard expects adjusted earnings of $0.83 to $0.87 -- though that doesn't include the possible effects of continued share repurchases, and excludes roughly $0.33 per share in costs related to the impending business separation. Analysts were modeling fiscal-third-quarter earnings at the high end of that range.

Finally, for the full fiscal 2015, management anticipates adjusted earnings per diluted share of $3.53 to $3.73. Again, this excludes roughly $1.50 per share in separation costs and restructuring charges. Wall Street, for its part, was looking for earnings of $3.63 per share, or just below the midpoint of Hewlett-Packard's guidance range.

In the end, the company posted a solid quarterly beat on the bottom line, showed continued progress toward completing its separation, provided encouraging information on the "dis-synergies" of that separation, and offered better-than-expected full-year earnings guidance.As it stands, that's more than enough to offset concerns over its slight top-line miss, so I think investors are right to take the long-term view and celebrate today's results.

The article Hewlett-Packard Company Earnings: A Solid Quarter as Separation Nears originally appeared on Fool.com.

Steve Symington owns shares of Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.