HP Earnings and Guidance OK, Autonomy Acquisition Crushes Its Books

Hewlett-Packard Co. (NYSE: HPQ) seems to be drafting its own obituary, based on the reaction to its earnings report. Actually, the real issue is its old acquisition of Autonomy.

The PC and IT-services giant has reported full-year earnings of $4.05 per share but a GAAP loss of $6.41 per share, with a 5% drop in revenue to $120.4 billion. The company's fourth-quarter non-GAAP earnings per share (EPS) of $1.16 is down 1% from a year ago as its revenue fell 7% to $30.0 billion. Thomson Reuters had estimates of $1.14 EPS on $30.4 billion in revenue. Cash flow from operations was up 69% to $4.1 billion.

For the first quarter of fiscal 2013, HP estimates non-GAAP diluted EPS to be in the range of $0.68 to $0.71 and GAAP diluted EPS to be in the range of $0.34 to $0.37. For the full year fiscal 2013, HP estimates non-GAAP diluted EPS to be in the range of $3.40 to $3.60 and GAAP diluted EPS to be in the range of $2.10 to $2.30. Thomson Reuters has estimates of $0.85 EPS for the first quarter and $3.52 EPS for the year (non-GAAP).

Where things get so nasty is that the company's net losses on a GAAP basis take a huge noncash goodwill and intangible asset impairment charge of $8.8 billion into account. This pertains to the Autonomy acquisition, which basically sounds like a case of accounting fraud. The acquisition under Leo Apotheker has brought on accounting improprieties.

As far as how the revenues broke down, here is each segment: Personal Systems revenue was down 14% year-over-year with a 3.5% operating margin. Printing revenue declined 5% year-over-year with a 17.5% operating margin. Services revenue declined 6% year-over-year with a 14.2% operating margin. Enterprise Servers, Storage and Networking revenue declined 9% year-over-year with an 8.3% operating margin. Software revenue grew 14% year-over-year with a 27.2% operating margin, including the results of Autonomy. HP Financial Services revenue grew 1% year-over-year as a 3% increase in net portfolio assets was offset by an 11% decrease in financing volume.

HP's 8-K filing notes on the accounting issues:

Following the completion of its annual review of its goodwill and purchased intangible assets for impairment, on November 20, 2012, HP announced that it recorded a non-cash charge for the impairment of goodwill and intangible assets within its Software segment of approximately $8.8 billion in the fourth quarter of its 2012 fiscal year.  The majority of this impairment charge relates to accounting improprieties and disclosure failures at Autonomy Corporation plc ("Autonomy") that occurred prior to HP's acquisition of Autonomy, misrepresentations made to HP in connection with its acquisition of Autonomy, and the impact of those improprieties, failures and misrepresentations on the expected future financial performance of the Autonomy business over the long-term. The balance of the impairment charge relates to the recent trading value of HP stock.  HP does not expect the impairment charge to result in any future cash expenditures.

HP shares are down more than 11% at $11.76, and the prior 52-week range was $12.36 to $30.00. CEO Meg Whitman has to be wondering how she can get herself out of the mess she stepped into.

JON C. OGG


Filed under: 24/7 Wall St. Wire, Earnings, PC Companies Tagged: featured, HPQ

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