Foolish Forecast: Irresistible Hewlett-Packard

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Hewlett-Packard (NYSE: HPQ) reports its fiscal Q3 2008 earnings Tuesday afternoon. Want to know what Wall Street expects to see? Read on. Want to know what really matters? Read on a bit more.

What analysts say:

• Buy, sell, or waffle? Twenty-five analysts give HP 17 buy ratings and eight holds.
• Revenues. On average, they expect to see 8% sales improvement, to $27.4 billion.
• Earnings. Profits are predicted to rise 17%, to $0.83 per share.

What management says:
Citing "improvement across our businesses," CEO Mark Hurd summarized his company's second-quarter results as "strong," and predicted further strength ahead. With revenues growing in all six corporate divisions, Hurd guided investors to expect the same numbers the analysts are parroting above. But take note: The "$0.83 per share" estimate in particular is a pro forma number. Under GAAP, Hurd tells us to expect $0.76 to $0.77 per share.

Looking further down the road, we're told to expect about $114.3 billion in sales this year, and GAAP profits of about $3.32 per share.

What management does:
Improvement is indeed the watchword at HP. Gross margins have done nothing but get better for three straight quarters, and operating and net results have been doing better for longer.  

While 9% operating margins may not seem like much relative to the 16% margins that Canon (NYSE: CAJ) and IBM (NYSE: IBM) routinely post (to say nothing of Microsoft's (Nasdaq: MSFT) meaty 40% margin), they're at least greater than what Dell (Nasdaq: DELL) posts.

Margins	1/07	4/07	7/07	10/07	1/08	4/08
Gross	24.4%	24.3%	24.2%	24.4%	24.5%	24.6%
Operating	7.6%	7.9%	8.2%	8.4%	8.8%	9.0%
Net	6.9%	6.6%	6.8%	7.0%	7.3%	7.4%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ending in the named months.

One Fool says:
Can nothing stop the HP juggernaut's steady progress toward overtaking its rivals? Well ...

Pretty soon now, HP's May merger announcement with EDS (NYSE: EDS) will take effect (it's supposed to close before year's end). Seeing as EDS' operating margins are a few points lower than those of HP, you have to expect we'll see an effect on the merged company's profits. It won't be gigantic, of course -- EDS is barely 10% the size of HP in terms of revenues -- but it'll definitely register. Be prepared.

Read all about HP's latest, greatest (?) merger in:

• HP Dons Kid Gloves for the EDS Deal
• Hewlett-Packard Gets a Tummy Ache
• Hewlett-Packard ... Hungry!