Strong dollar hurts HP's earnings forecast, shares plummet

Tue Feb 24, 2015 6:54pm EST
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(Reuters) - Hewlett-Packard Co (HPQ.N: Quote) reported flat or lower quarterly revenue in all its operating units on Tuesday, and forecast full-year earnings well below analysts' expectations due to the strong U.S. dollar.

Its shares tumbled 6.7 percent in after-hours trading.

The world's No. 2 PC maker, which has struggled to adapt to the new era of mobile and online computing, is preparing to split into two listed companies later this year, separating its computer and printer businesses from its faster-growing corporate hardware and services operations.

"Revenue was a little short on the top end, the guidance for the second quarter was a little below where the consensus was," said Daniel Morgan, a portfolio manager at Synovus Trust Co.

"Let's wait till October, see if this split is really going to create the shareholder value that (CEO) Meg Whitman is hoping for."

HP has not projected the total cost of its separation plan, but said on Tuesday it will amount to about $1.50 per share this fiscal year, which works out at about $2.7 billion overall, although some overseas tax-related costs will be recuperable.

The combined effect of those separation costs and the hit from the strong dollar will almost halve HP's free cash flow this fiscal year to about $3.5 billion to $4 billion, down from three months ago when it forecast $6.5 billion to $7 billion.

Palo Alto-based HP follows Microsoft Corp (MSFT.O: Quote) and International Business Machines Corp (IBM.N: Quote) in seeing a negative impact from the strong dollar. HP took about two-thirds of its revenue from outside the United States in the year ended October 2014. The dollar .DXY had risen 14.7 percent in the last six months through Tuesday.

HP said it expected adjusted profit of $3.53 to $3.73 per share for the full year ending October, due to a 30 cents per share hit from currency, well below analysts' average estimate of $3.95.   Continued...

A Hewlett-Packard logo is seen at the company's Executive Briefing Center in Palo Alto, California January 16, 2013. REUTERS/Stephen Lam