May 17, 1997

Earnings, Sales Reports Trigger A Steep Drop For H-P

From Wire Reports
 

Hewlett-Packard Co. shares fell almost 11 percent as price cuts in its mainstay printer business and a lack of sophisticated new computers hurt second-quarter earnings and sales.

H-P shares fell $6.25 to $52.62-1/2 Friday. H-P’s decline accounted for about 20 points of the Dow’s more than 100-point drop.

H-P’s orders rose 3 percent, compared with 24 percent a year earlier, as Compaq Computer Corp. cut into the server and personal computer business and Lexmark International Group Inc. and others hurt printer sales. The slowdown has dogged H-P for the past three quarters and frustrated investors, who had come to expect annual order growth of 20 percent or more.

“It’s a far cry from where they were two years ago,” said George Elling, an analyst at Lehman Brothers. “They haven’t had any major kickers that would create a growth spurt.”

H-P’s orders in the U.S. fell 2 percent to $4.6 billion for the second quarter, while orders in Europe dropped 1 percent to $3.3 billion.

“Does it (order growth) go back up to 30 percent? I don’t think so,” said Daniel Kunstler, an analyst with J.P. Morgan & Co. “Does it go back up to the mid-teens? It may, if they have the right products.”

That may not be easy.

H-P is the largest seller of printers for PCs with a market share of 60 percent to 70 percent. Yet it faces intense price competition from Lexmark, Epson and others on top of a slowdown in the market.

Just last week H-P cut prices on its LaserJet models as much as 20 percent after a series of earlier cuts.

“You have to give H-P credit for fending off competition in ink-jet printers for 10 years. But you can’t fend off competition forever,” said John Rutledge, a technology analyst at Loomis, Sayles & Co., which has $20 billion in assets and owns 360,000 H-P shares.

H-P also was hurt by last-minute problems with some of its sophisticated servers and workstations. That delayed shipment of the T-series, which H-P told analysts Thursday was now shipping in volume.

“Compaq has really been baring its teeth in the server business,” said Kunstler, adding that Compaq’s sales of workstations and servers surged 50 percent in the first quarter.

Home PC sales, an area in which H-P hasn’t been as aggressive as competitors Compaq and Dell Computer Corp., fell slightly, hurt by a lack of new product.

Compaq also gained some ground with its sub-$1,000 PCs, which consumers are buying, analysts said.

H-P is “a multi-product company with problems in many different areas,” Rutledge said.

Net income for the quarter ended April 30 rose to $784 million or 75 cents a share, from $723 million, or 69 cents, in the year-earlier period.

Some stocks that moved substantially or traded heavily Friday:

NYSE

Roper Industries, up $4 at $44.75.

The Bogart, Ga.-based maker of fluid handling and industrial control products said late Thursday that it agreed to buy camera-maker Princeton Instruments for $40.4 million and Petrotech, a provider of turbine and compressor systems, for $22 million.

Pep Boys - Manny, Moe & Jack, down $2.12-1/2 at $30.50.

The Philadelphia-based automotive retail and service chain late Thursday reported first-quarter earnings below Wall Street expectations. The company said unseasonably cool and rainy weather had a negative impact on its results.

NASDAQ

U.S. Diagnostic, down $2 at $6.

The West Palm Beach, Fla.-based provider of radiology services said late Thursday that it has failed to meet the Nasdaq National Market System listing requirements.

Donnkenny, up $1.31-1/4 at $4.37-1/2.

The low-priced apparel maker said it was no longer the subject of a formal listing review by the Nasdaq Stock Market. The New York-based company also reported an encouraging first-quarter profit.


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