Hewlett-Packard Cuts Costs Enough to Satisfy Investors

Hewlett-Packard Co. (NYSE: HPQ) reported fourth quarter and full-year 2013 results after markets closed Tuesday evening. For the quarter the hardware maker reported adjusted diluted earnings per share (EPS) of $1.01 and $29.1 billion in revenues. In the same period a year ago, H-P reported EPS of $1.16 on revenue of $30 billion. Third-quarter results compare to the Thomson Reuters consensus estimates for EPS of $1.00 and $27.91 billion in revenue.

For the full year H-P posted EPS of $3.56 on revenues of $112.3 billion, down from EPS of $4.05 and revenues of $120.4 billion in 2012. The consensus estimates called for 2013 EPS of $3.55 on revenues of $111.15 billion.

Third-quarter adjusted earnings do not include charges of $371 million for restructuring and $317 million on amortization of intangible assets. A tax adjustment of $146 million helped offset the charges. On a GAAP basis, EPS totaled $0.73 in the third quarter.

For the first quarter of its 2014 fiscal year, H-P forecast adjusted EPS in a range of $0.82 to $0.86. For the full year the company estimates adjusted EPS at $3.55 to $3.75. The consensus estimates for the first quarter are $0.85 on revenues of $26.82 billion and for the full year EPS is forecast at $3.66 on revenues of $107.61 billion.

CEO Meg Whitman said:

Through improved execution, strong cost management, and with the support of our customers and partners, HP ended fiscal 2013 on a high note. Our Q4 results demonstrate that HP’s turnaround remains on track heading into fiscal 2014.

Looking briefly at operating margins, for the third quarter consolidated gross margin rose 0.6% sequentially and was down 1.4% year-over-year. Margins rose year over year in the software and financial services groups, and were down 2.3% in the enterprise services group and 2% in the enterprise group.

Because analysts have a lower full-year revenue forecast for 2014 than H-P posted in 2013, margins are going to have to improve if the profit estimate is going to prove out. Operating margin could be the metric that makes or break H-P next year.

Shares of H-P are up nearly 7% in after-hours trading Tuesday, at $26.76 in a 52-week range of $12.22 to $27.78. Thomson Reuters had a consensus analyst price target of around $25.00 before today's results were announced.