Close of business today will see the fiscal third quarter earnings report from Hewlett-Packard Co. with both sales and earnings forecast expected to be lower than for the same period last year.
The company currently has two weak links; the importance of its exposure to the Chinese market and rapidly diminishing global demand for personal computers (PCs).
The sales figure is expected to be lower partly as result of the fact that H-P derives about 11% of its sales from China and the economic slowdown there has been harmful to sales numbers.
Mizuho Securities analyst Abhey Lamba said, “Our checks uncovered significant disruption at the company, which combined with slowdown in PCs, currency impact, challenges in printing and ongoing issues in services could result in a lackluster top-line.”
In addition, the analysts’ forecasts don’t look very encouraging and their forecasts are the following:-
The earnings at Hewlett- Packard (HPQ, -2.29%) are forecast to decline to an EPS of 85 from 89 cents the previous year which also represents a drop from the 87 cents a share reported in the second quarter of this year.
H-P does however have a long history of beating analyst earnings forecasts and hasn't missed a FactSet consensus since the third quarter of 2013.
According to FactSet, expectations are for Hewlett-Packard to report revenue of $25.4 billion compared to $27.6 billion in revenue in the same quarter last year.
Historically, H-P has fallen short of the FactSet revenue forecast for each of the last three quarters. The decline in sales by the PC industry generally is expected to hurt Hewlett-Packard. International Data Corporation says that PC sales fell 2.4% in 2014 and forecast that sales will decrease by a further 4.9% to 239.1 million units worldwide in 2015.
Hewlett-Packard shares have fallen by 17% during the last three months, underperforming the broader S&P 500 index (SPX), which has lost 2.3% in the same period. Year-on-year, the S&P index has risen by 4.9% while Hewlett-Packard shares have lost 22%.
Morgan Stanley has lowered its 2015 calendar year estimates for PC growth on the back of the lower expectations for Microsoft Corp.’s Windows 10 operating system which H-P uses on its laptops. The bank is forecasting a decline of 10% in year-on-year sales of PCs.
Meanwhile, the company announced plans to split into two separate entities in October 2014 by moving its enterprise and server business into a separately traded entity called Hewlett-Packard Enterprise Co. Personal computers and printers will remain with the traditional Hewlett-Packard brand. Watch for further developments on the split.