Hewlett-Packard (HPQ): Firing on All Cylinders

Computer hardware maker Hewlett-Packard (NYSE: HPQ) reported second quarter earnings of $0.91 (GAAP) a share today. Analysts expected $1.05 in EPS for the quarter. Year-ago earnings for the same period totaled $0.71 per share. Second-quarter profits for the quarter were up 25 percent to $2.9 billion.

Net revenues showed an increase of 13 percent to $30.8 billion, including a 4 percent favorable currency exchange benefit. The company’s enterprise storage and servers unit reported particularly strong sales growth (up 31 percent), but their pc and printer groups also did well, with revenues up 21 percent and 8 percent respectively. The 3Com acquisition helped HP Networking to grow revenues by 58 percent.

“HP drove double-digit revenue growth and improving profits, contributing to our twentieth consecutive quarter of year-over-year operating margin expansion,” said Cathie Lesjak, HP EVP and CFO.. “With the improving demand environment, we are accelerating investments for growth while raising our full-year outlook.”
The company anticipates revenue growth for the full fiscal year of about 8 to 9 percent and earnings per share to fall in the $3.76 to $3.81 range, a bit lower than previous guidance.

The stock is up almost 3 percent in after-hours trades.

Comments: I want to say how exceptional HP is since I know that David Packard is an exceptional piano player (and Martin Hewlett isn’t too shabby on the violin). But seriously, this company is firing on all cylinders and swimming in cash. The company spent $1.8 billion to repurchase 35 million shares. The revised guidance includes the acquisition of Palm next quarter but excludes any revenue from the acquisition.

HP is well-managed, well-capitalized and clearly in a strong growth phase, so trimming its eps estimates makes good sense. The company did not beat on eps expectations, but beat on revenue for the quarter. HPQ is trading about midway between its high of 54.75 for the year and its low of 33.55. While you may have missed the golden opportunity on May 6, the stock has strong upside potential and this could be your opportunity to get in at the ground floor.

Disclosure: No positions