Hewlett-Packard: The (Old) HPQ Era Ends Unimpressively

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Hewlett-Packard — the technology company that split into Hewlett Packard Enterprise (HPE) and HP (HPQ) at the end of last month — posted its final quarterly results as a unified company after the market closed on Tuesday. And, they weren’t great.

Hewlett-Packard: The (Old) HPQ Era Ends UnimpressivelyThe business-oriented division that sells servers and cloud services turned in numbers that were lackluster, while the PC and printer unit’s quarter could only be describe as pitiful.

Still, between the two newly forged companies, at least one of them has given investors something to be excited about. The other? Not so much.

Perhaps all those supporters of the breakup had the right idea after all.

HPQ Stock’s Fourth-Quarter Earnings

In its last quarter as a single company, Hewlett-Packard earned 93 cents per share on revenue of $25.7 billion.

The figures don’t compare favorably to year-ago numbers, or to expectations. The company earned $1.06 per share of HPQ (the old HPQ) and did $28.4 billion worth of sales of in the fourth quarter of last fiscal year. Analysts were expecting a profit of 97 cents on a top line of $26.36 billion.

As for the breakdown by operating units, all but one lost ground in terms of year-over-year sales; the so-called “Enterprise Group” managed to beef up its top line by 2%. Printers and personal computers — the units that now make up the company called ‘HP’ — both saw sales fall by 14% versus year-ago levels. Enterprise services reported a 9% drop in revenue, software sales fell 7%, and the financial services are posted an 11% dip in its top line.

Broadly speaking, operating profits for each line of business fell accordingly.

Hewlett-Packard Quarterly Results

Overall revenue was impacted by a strong U.S. dollar, but even stripping out the adverse impact of a strong dollar, sales still fell 2.9% year-over-year.

Looking Ahead

In retrospect, splitting the company into two entities may have been the right decision, as at least one of them has a bright future.

Up until the 2016 guidance that was offered with Tuesday’s earnings announcement, analysts were only able to guess as to how each company would perform post-split. They weren’t too far off for either, though now we can see the pros were expecting a little too much from the new HPQ stock, and looking for a little too little from HPE.

For fiscal 2016,ending in October of next year, HP is expecting a bottom line of between 33 and 38 cents per share of HPQ. Analysts had been calling for an average profit of 42 cents per share.

As for Hewlett Packard Enterprise, that company projected a profit of between 37 and 41 cents per share, versus an analyst-expected bottom line of 43 cents per share of HPE.

Hewlett Packard Enterprise CEO Meg Whitman (former CEO of the pre-split Hewlett-Packard) said of last quarter’s results and the outlook for the current year:

“Hewlett Packard Enterprise is off to a very strong start. The new company’s business segments delivered a second consecutive quarter of constant currency revenue growth in Q4, and we believe that momentum will accelerate into fiscal ’16.”

Here’s How Hewlett Packard Enterprise Could Do It

Printer and personal computer company HP, certainly has its work cut out for it. CEO Dion Weisler was vocally optimistic, of course, saying:

“In these challenging markets, we are taking decisive actions that will protect our core business which generates the majority of our cash flows. We firmly believe in our strategy and, given our scale, innovation, channel reach and brand, we are well positioned to gain profitable share in the markets where we choose to play.”

With the PC sales trend appearing to be worsening rather than stabilizing, though, it’s not difficult to understand why investors have doubts.

As for Hewlett-Packard Enterprise, its optimistic outlook is a little more plausible, especially in light of something else HPE announced on Tuesday … it’s partnering up with Microsoft (MSFT) by offering the software giant’s Azure cloud services. This in turn means Hewlett-Packard’s current public cloud product (Helion) is going away in early 2016.

The decision and resulting relationship with Microsoft should give Hewlett Packard Enterprise a greater array of services to offer current and would-be clients, particularly in so-called “hybrid” cloud environments that are partially public and partially private. IT research outfit Gartner believes hybrid clouds could represent half of all enterprise-level cloud demand within just a couple of years.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/11/hewlett-packard-hpq-stock-hpe/.

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