Sales Slip At Hewlett Packard

SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: A rough quarter for Hewlett-Packard`s new CEO. Earnings beat expectations, but sales slip and the tech giant`s turnaround still has a long way to go.

GHARIB: Good evening, everyone, both encouraging and disappointing news from Hewlett-Packard (NYSE:HPQ) tonight. It announced better than expected earnings after the market close, but Tom, it expects modest growth in the upcoming quarter.

HUDSON: That`s where the disappointment was Susie and this is one reason that shares slipped in after-hours trading. Let`s run down those quarterly numbers from HP that we learned here late today. The company earned $0.92 per share in its fiscal first quarter, a nickel more than analyst estimates but down considerably from last year. The two big disappointments, though, revenues in the last quarter falling 7 percent, $30 billion. That`s lower than anticipated and Susie, of course, looking ahead as you mentioned, HP said that the earnings for the current quarter will come in shy of what had been expected.

GHARIB: Let`s get more analysis on those numbers and joining us is Michael Holt. He`s senior equity analyst specializing in technology at Morningstar (NASDAQ:MORN). Hi, Michael. So what was your reaction to both the quarterly numbers and the outlook?

MICHAEL HOLT, ANALYST, MORNINGSTAR: Well, it`s a bit of a relief that they are actually meeting the goals they`ve set. We have to keep in mind that this was a lower bar, lower guidance and it reflects the really challenging position the company is in in some of its key business units.

GHARIB: Meg Whitman, who`s the new CEO took over just five months ago in a situation with a management shakeup and a struggling company. What`s your sense of where things are now, in terms of a progress report? I know she was on the conference call with you just a short while ago talking to all the analysts. What was your sense of, if Hewlett-Packard (NYSE:HPQ) is on the right track?

HOLT: As we certainly see, even a little bit more challenging situation for the printing business and the services business. But the sense that Meg Whitman is conveying is that she`s much more in control over and aware of where the problems are and has a plan to tackle those. We`re still asking for a little bit of a leap of faith that the next couple of quarters will be bumpy and that it`s going to be a long multi-year transition, but we like that they are setting goals and that they upheld their full year earnings status.

GHARIB: Looking over the past quarter it seemed like almost every area that Hewlett-Packard (NYSE:HPQ) was in was weak, whether you`re talking PC`s or software or enterprise. Do you think that there are some of these areas that they should exit or rethink the businesses that they`re in?

HOLT: I`m not sure that exiting the businesses is what makes sense at this time. They dangled the PC segment out on the market a couple quarters ago and that turned out to be a big mess and really created some head winds for right now. What we`re really keying on is what are the temporary head winds and what are the permanent head winds? So the printing business, how much damage has been done to that business and what can happen in the future to turn things around?

GHARIB: Investors have been very patient with this stock. It took a big hit over the summer. It`s beginning to pick up although it was down today both in the regular session and after hours. You`ve got a $40 target on the stock; it`s 28 now. What do you think?

HOLT: I think there`s a lot of up side here for investors, but don`t expect an overnight change. It`s a long slow turn around and we expect a slow crawl in the share price to reflect investor confidence returning as they continue to set and meet their goals.

GHARIB: Any disclosures to make, do you own Hewlett Packard (NYSE:HPQ)?

HOLT: No, no disclosures.

GHARIB: Michael, thanks for coming on the program.

HOLT: Thanks for having me.

GHARIB: And we`ve been speaking with Michael Holt of Morningstar (NASDAQ:MORN).

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