Earnings Preview: Hewlett-Packard

Hewlett-Packard (HPQ) is expected to report Q3 earnings after the market close on Thursday, August 18 with a conference call scheduled for 5:00 pm ET.

Guidance

The consensus estimate is $1.09 for EPS and $31.19B for revenue, according to First Call. The market seems to be pricing in the increased likelihood that the quarter won't be fantastic in light of the global economic challenges, and based on what Hewlett-Packard's closest competitors are saying about demand. CEO Leo Apotheker is facing mounting pressure to turn things around and enhance management's credibility on the Street after a rocky start. Apotheker had two quarters when HP was forced to shave 2011 sales forecasts. Some analysts warn HP may have to do so again. Investors fled hardware stocks after Dell (DELL) this week slashed its FY12 revenue outlook on concerns that spending by corporations and government will crumble as economic growth slows.

Analyst Views

Wells Fargo expects continued weakness in consumer PCs and services, slightly offset by Forex benefits. The firm has also not seen significant demand for the company's WebOS mobile/tablet products. Wells projects that the revenue results will fall short of management guidance, but think the company was aggressively buying back shares in the quarter to enable it to achieve its earnings targets. Wells believes that the IT spending environment got a little more challenging particularly in EMEA during Q3, and the consumer PC market has not improved. Wells trimmed its Q3 and onward estimates given a weaker economy. For Q3, Wells now project EPS of $1.08 and revenue of $29.7B. This compares to HP EPS/revenue guidance of $1.08/$31.1B-$31.3B. Wells also reduced its FY11 revenue estimate to $129.7B while keeping its $5.00 EPS estimate. Likewise, its FY12 revenue estimate was cut to $128.4B while keeping a $5.21 EPS estimate given the likely share buybacks. Last quarter, HP reduced its FY11 outlook due to impact from the Japanese disaster and continued softness in the consumer PC market. Guidance for FY11 calls for non-GAAP EPS of at least $5.00 and revenue in the range of $129B-$130B. Consensus FY11: $5.01/$129.15B.