(HPQ) Hewlett-Packard Projects Dull 2013

Computer maker Hewlett-Packard Company’s (HPQ) CEO Meg Whitman rang an alarm for investors as she announced that fiscal 2013 earnings may be expected to plunge over 10%.

The discouraging outlook also included possibilities of declining revenues in every business division, apart from software. The announcement battered the company’s shares, which slumped 13.0% to close at $14.91 on Wednesday, the lowest level since November 2002.

The company expects non-GAAP profit in the range of $3.40 to $3.60 per share for fiscal 2013. Moreover, in GAAP terms, HP is expecting $2.10 to $2.30 a share after charges of $1.30 per share.

Whitman said that investors should not expect a recovery until fiscal 2014, when current investments would generate returns. She also said that high executive turnover in recent years have dampened HP’s business.

HP is particularly bearish on the enterprise business. The company projects enterprise services revenue to decline 11.0% to 13.0% during fiscal 2013. Operating margins are estimated to range from break even to 3.0%.

Some industry experts commented that the competitive PC market has pulled down its margins significantly and reduction in IT spending is another headwind. Also, a declining personal computer business has largely affected HP’s business activity.

HP’s outlook looks particularly bleak when compared with that, IBM Corp (IBM), which raised its full-year 2013 earnings outlook.

Hewlett-Packard’s third quarter 2012 earnings per share exceeded the Zacks Consensus Estimate, but revenues declined compared with the year-ago period. Results were negatively impacted by macroeconomic factors, lower order renewal, a massive write-down charge and low bookings. However, we believe that the restructuring initiatives taken up by the company is encouraging and should improve margins going forward.

During the quarter the company took some major steps to focus on strategic priorities. It is also taking innovative steps to manage costs, drive growth and improve the health of its balance sheet.

On the other hand, the printer business looks challenging, with competitors such as Lexmark (LXK) and Canon (CAJ) regularly coming up with new products. In addition, the increasing availability of low-cost refilling options for toners and cartridges poses a threat for HP. Also, margins in the services business are likely to remain weak this year and the macroeconomic trends continue to work against it.

Currently, HP has a Zacks #3 Rank, implying a short-term Hold rating.

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