Under-fire HP continues the struggle as split looms

Under-fire HP continues the struggle as split looms

“The market is giving her credit for not going under…”

If Hewlett-Packard’s recent financial results are anything to go by, CEO Meg Whitman can attest that when it comes to splitting up a large organisation, breaking up isn’t easy.

With the company deep into its long-awaited separation, which will see HP’s consumer units move away from its corporate business, the tech giant reported declining earnings and lowered outlooks for 2015, as the transition continues to take its toll on the ailing organisation.

In revealing financial results for its fiscal 2015 first quarter ended January 31, 2015, HP reported first quarter net revenue of US$26.8 billion, down 5% from the prior-year period and down 2% on a constant currency basis.

Consequently, and somewhat unsurprisingly, HP shares nosedived in after-hours trading on Tuesday, dropping around 6 per cent despite Whitman’s characterisation of the quarter as having “excellent execution.”

"With the first quarter of fiscal 2015 now behind us, the HP turnaround remains on track," Whitman told analysts.

“We grew operating profit margins across all of our major business segments, increased investment in innovation, and executed well across key areas of our portfolio and in our separation activities. Our progress continues as we head into Q2."

Strong US dollar

Given that the US dollar has “strengthened considerably” since HP last provided an FY15 outlook in November, 2014, as is the case with many US based companies, the currency challenge is having a significant impact on HP's financial outlook.

As a result, the company forecast disappointing second-quarter profit as it struggles to deal with the impact of a stronger dollar.

For the fiscal 2015 second quarter, HP estimates non-GAAP diluted net EPS to be in the range of $US0.84 to $US0.88, reflecting an estimated currency impact of $US0.09 while also expecting GAAP diluted net EPS to be in the range of $US0.57 to $US0.61, reflecting an estimated currency impact of $0.09.

Fiscal 2015 second quarter non-GAAP diluted net EPS estimates exclude after-tax costs of approximately $US0.27 per share, related to separation costs, the amortisation of intangible assets, restructuring charges and acquisition-related charges.

“While we were able to manage the impact of currency in the quarter and deliver earnings as expected, we believe the impact on FY15 will be significantly greater than we anticipated in November," Whitman added.

"We'll work hard to offset these impacts through re-pricing and productivity, but fully mitigating currency movements of this size would require reducing investments and mortgaging our future. We won't do that."

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