Hewlett-Packard Earnings: 1 Segment Just Took the Clear Lead in HP's Turnaround

The market might not be too impressed by Hewlett-Packard Company's (NYSE: HPQ  ) fiscal third-quarter results, but that certainly doesn't mean they were bad. To be sure, Hewlett-Packard stock fell roughly 1% in after-hours trading after the company announced quarterly revenue grew "just" 1% year over year, to $27.6 billion.

Helped, in part, by HP's repurchase of around 17.5 million shares for $582 million, that translated to 3% growth in adjusted earnings, to $0.89 per diluted share, which was at the high-end of HP's own guidance for adjusted earnings of $0.86 to $0.90 per share. Analysts, on average, were expecting HP to report the same adjusted earnings of $0.89 per share, but on a slight year-over-year sales decline, to $27.01 billion.

That said, HP did turn in GAAP earnings of only $0.52 per share, which was well below its previous guidance of $0.59 to $0.63. But it also appears that much of that shortfall is expected to be recouped in the current quarter. Though HP dropped the high-end of its previous GAAP EPS guidance by $0.01, it simultaneously boosted the low-end by a full $0.07 per share to result in a new expected GAAP EPS range of $2.75 to $2.79. HP also raised its adjusted earnings-per-share guidance to a range of $3.70 to $3.74, which is a considerable boost over previous guidance for adjusted EPS of $3.63 to $3.75.

This drove HP's solid quarter
To explain Hewlett-Packard's top-line beat, look no further than outperformance from its Personal Systems business, which represents its single-largest segment, and enjoyed revenue growth of 12% year over year, to $8.65 billion. Specifically, 9% and 18% respective unit sales growth in HP's desktops and notebooks led to 14% growth in commercial revenue, and 8% growth in consumer sales. With the lone exception of 2% growth in HP's Enterprise Group -- which focuses on industry standard servers, storage, and networking -- its personal systems managed to buoy year-over-year declines from every other segment, including drops of 4% in Printing, 6% in Enterprise Services, 5% in Software, and 3% in Financial Services.

Meanwhile, HP generated $3.6 billion in cash flow from operations in Q3, good for a 36% increase over the same year-ago period. When all was said and done, HP exited the quarter with a whopping $14.8 billion in gross cash, which should give it plenty of breathing room to further develop its compelling growth opportunities like cloud-based solutions going forward.

It should come as no surprise, then, that HP CEO Meg Whitman insisted she's "very pleased" with HP's progress. Whitman went on to elaborate: "When I look at the way the business is performing, the pipeline of innovation, and the daily feedback that I receive from our customers and partners, my confidence in the turnaround grows stronger."

Foolish takeaway
So why the muted reaction? For one, shares of HP are already up around 25% so far in 2014, and analysts went into the report modeling full fiscal-year adjusted earnings of $3.72 per share -- smack dab in the middle of HP's freshly raised guidance. It makes sense on the surface, then, that the market is effectively shrugging its shoulders in response to HP's otherwise solid report.

In the end, however, with shares trading at just 0.6 times trailing 12-month sales, and a mouthwatering nine times next year's expected earnings, I wouldn't be the least bit surprised if HP manages to continue rewarding investors as its turnaround gains steam.

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