Strong dollar hurts HP's earnings forecast, shares plummet

Tue Feb 24, 2015 10:49pm EST
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(Reuters) - Hewlett-Packard Co (HPQ.N: Quote) reported flat or lower quarterly revenue in all of its operating units on Tuesday, and forecast full-year earnings well below analysts' expectations due to a 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 it said on Tuesday it will take charges of $1.3 billion this fiscal year and $500 million next year to pay for the move.

On top of that, it forecast an extra $300 million this year in capital spending related to the plan, plus $950 million in foreign tax expenses, although it said more than half of the tax cost could be recuperated.

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 a forecast three months ago of $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 significant 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.   Continued...

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