Fool.com: Hewlett-Packard Back on Track (Breakfast News) August 17, 1999

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Tuesday, August 17, 1999

"If at first you don't succeed, you are running about average."
-- M.H. Alderson

Hewlett-Packard Back on Track

By Brian Graney (TMF Panic)

Proving that its recent quarterly successes have not been a fluke, computing, imaging, and test equipment company Hewlett-Packard (NYSE: HWP) last night posted another quarter that was in line with analysts' expectations. Earnings for the fiscal third quarter were $0.81 per share (excluding $0.04 per share in costs related to the impending separation of its test equipment business), up from $0.58 a year ago and a penny ahead of the First Call mean estimate. Total revenues rose 11% in the period as expected, as the company benefited from strong growth in Asia and in its PC business.

As H-P's earnings and revenue growth has become more predictable in the last few quarters, investor confidence in the firm's future has grown. The company's share price is up 100% from August 1998, when H-P reported flat year-over-year Q3 EPS on a less-than-heart-stopping 5% increase in revenues. Some 60% of that gain has come since March 2, when the firm announced its intention to separate into two parts, with the heart of the company focused on the computing and printing markets. Coinciding with the third quarter results yesterday was the initial IPO regulatory filing for the soon-to-be-separate test and measurement equipment unit, which will do business as Agilent Technologies.

Among the quarter's bright spots, Asian revenues jumped 24% after a 13% decline during the same period a year ago. After two quarters of flattish year-over-year results, U.S. revenues climbed 8% to $5.6 billion. Order growth for the company's computing products was "strong" overall, with the exception of Latin America and workstations. PC shipments were up 36%, allowing H-P's worldwide PC market share to improve to 6.6% from 6.2% in Q2, according to International Data Corp. Meanwhile, the company held the line on costs as gross margin was 33%, in line with the pervious two quarters.

Looking ahead, H-P is maintaining its earlier guidance of 10% to 13% revenue growth in Q4, which puts the company on track to see 6% to 7% revenue growth for the full year. While that's lower than the 8% to 10% growth the company had been previously hoping for earlier this year, it's a solid base on which incoming CEO Carly Fiorina can build next year.

News to Go

International long distance company World Access Inc. (Nasdaq: WAXS) is buying privately held facilities-based international carrier FaciliCom International Inc. for about $736 million in convertible preferred stock and assumed debt. World Access expects the deal will "significantly" add to EBITDA (earnings before interest, taxes, depreciation, and amortization) in 2000.

Luxury goods retailer Tiffany & Co. (NYSE: TIF) reported Q2 EPS of $0.31, up from $0.19 a year ago and ahead of the First Call mean estimate of $0.24. Net sales jumped 24% to $307 million, thanks to 12% same-store sales growth in the U.S. and 13% growth in Japan.

Fashion clothing retailer The Limited (NYSE: LTD) posted Q2 EPS of $0.26 (excluding one-time items), doubling last year's results and in line with the Zacks mean estimate. Adjusted net sales rose 10% from a year ago, while the company's same-store sales during the quarter also climbed 10%.

Home improvement retailer The Home Depot (NYSE: HD) turned in Q2 EPS of $0.44, up from $0.31 a year ago and in line with an earnings pre-announcement last week. Sales rose 28% to $10.4 billion, thanks in part to a 7% increase in the average sale per transaction.

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