HP reports drop in profit but says turnaround effort making progress

The company reported better-than-expected results as its cost-cutting plans started to kick in

By , IDG News Service |  IT Management, HP

Hewlett-Packard reported a drop in profit for the last quarter as printer and PC sales both declined, but said cost-cutting measures the company announced last year are starting to pay off.

HP reported earnings for the first quarter of its fiscal year, ended Jan. 31, of $1.2 billion, down 16% from the same quarter a year earlier. Revenue fell 6% to $28.4 billion, the company announced Thursday.

Sales of PCs and workstations fell 8% to $8.2 billion, HP said, while its printer division suffered a 5% decline in revenue, to $5.9 billion, HP said.

HP's Enterprise Group, which sells server, storage and networking gear, saw revenue decline 4% to $6.98 billion, HP said. Sales of software and enterprise services also declined.

HP has now reported six quarters of declining profit and revenue, following a period of turmoil that saw two leadership changes within a year and a botched plan to spin off its PC division, a decision HP later reversed.

Under the new leadership of CEO Meg Whitman, HP announced a restructuring plan last year that includes reducing its workforce by 27,000 people. The goal is to reduce HP's costs so it can invest more in new products and expanding its business.

Those efforts have started to pay off, Whitman said in a statement Thursday. Pro forma earnings for the quarter, which exclude certain one-time charges, were $0.82 per share, down 11% from a year earlier but better than the $0.71 financial analysts had been expecting, according to a poll by Thomson Reuters.

"While there's still a lot of work to do to generate the kind of growth we want to see, our turnaround is starting to gain traction as a result of the actions we took in 2012 to lay the foundation for HP's future," Whitman said in the statement.

Investors applauded the news, at least initially, sending HP's shares 7% higher in after hours trading, to $18.31 per share. That's still off of HP's 52-week high of $27.87 a share.

HP isn't the only big computer maker suffering -- Dell reported a 31% drop in profit earlier this week, and CEO Michael Dell is trying to take the company private to escape Wall Street's scrutiny while he rebuilds the business.

HP's results were down almost across the board. Enterprise services revenue declined 7% and software revenue declined 2%. Its hardware business was hit by a 3% drop in sales of industry standard servers, and a 24% drop in its mission critical systems business, which sells primarily high-end Itanium servers.

A bright spot was networking revenue, which climbed 4%, and revenue from financial services, which increased 1%, HP said.

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