As most of the firms on Wall Street queue up to report their end-of-year numbers, computer maker Hewlett-Packard (NYSE:HPQ) is once again a step ahead of the pack. When reporting its earnings news on Tuesday, it's fiscal Q1 2007 that it'll be talking about.

What analysts say:

  • Buy, sell, or waffle? Twenty-eight analysts follow HP, with 17 of them rating the stock a buy (two more than last quarter), eight a hold (down two), and three a sell (no change).
  • Revenues. On average, they expect to see 7% sales improvement to $24.28 billion.
  • Earnings. Profits are predicted to rise 29% to $0.62 per share.

What management says:
I'm just guessing here, but it seems the scandal that erupted over HP's botched leak investigation lies behind yet another C-level departure at HP. In December, the firm announced that CFO Bob Wayman will retire in favor of company treasurer Cathie Lesjak. The switch took effect on New Year's Eve.

Barring the ultimate departure coming to pass -- CEO Mark Hurd's leaving the company -- it looks like HP is running out of people to fire, and investors will soon be able to get back to focusing on the company's brilliant business. As HP closed our fiscal 2006 last quarter, Hurd was able to boast of "solid revenue growth, margin expansion across our key businesses and excellent cash flow from operations."

What management does:
When a firm's already making $90 billion-plus in annual sales, single-digit sales growth is indeed "solid." And when that same firm takes the single-digit rise in sales and turns it into a fourfold increase in profits, then you know there's some serious margin expansion going on. Indeed, as the table below reveals, HP has grown its rolling gross and operating margins steadily over the last 18 months, and its net margins for more than a year.

Margins

7/05

10/05

1/05

4/06

7/06

10/06

Gross

23.3%

23.4%

23.5%

23.8%

24.2%

24.4%

Operating

5.5%

5.7%

6.2%

6.9%

7.5%

8.0%

Net

3.6%

2.8%

3.1%

4.1%

5.5%

6.8%
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:
As discussed in last quarter's Foolish Forecast, while I don't have any reason to object to HP's performance on the income statement (sales are up 6% year over year for the last two quarters, cost of goods sold just 4%, and selling, general, and administrative costs are, impressively, quite flat), problems do remain on the balance sheet. And in fact, they're getting worse.

Last quarter, I noted that both inventories and accounts receivable were outpacing sales growth with their twin 8% rises. At last report, the disparity had actually gotten worse. A/R for the last quarters are now tracking 10% higher than in the second half of fiscal 2005; inventories are running 12% higher. It almost gets a Fool to wondering if, preoccupied with the recent firestorm of political scandal, management might be taking their eye off the working capital management ball.

That's yet another reason investors will heave a huge sigh of relief when the last of the implicated, and guilty-by-association, execs exit stage left, so that HP can get back to what it's good at: making money.

Competitors:

  • Apple (NASDAQ:AAPL)
  • Dell (NASDAQ:DELL)
  • Gateway (NYSE:GTW)
  • IBM (NYSE:IBM)
  • Sun Microsystems (NASDAQ:SUNW)
  • Xerox (NYSE:XRX)

For another look at HP, check out "Espionage and Coffee."

Dell is an Inside Value and Stock Advisor selection.

Fool contributor Rich Smith does not own shares of any company named above. The Fool's disclosure policy is as neutral as Switzerland.