HP Profit Up 25%; Investors Disappointed by Rising Costs
Hewlett-Packard said Thursday that its second-quarter profit rose 25%, but investors were disappointed by rising costs that eroded the company’s margins and threatened to linger.
HP’s stock dropped nearly 9% after the company reported earnings below analysts’ expectations, falling $8.50 to close at $105.25 on the New York Stock Exchange.
The nation’s second-largest computer company earned $723 million, or $1.37 cents a share, for the three months ended April 30. It had profit of $577 million, or $1.10 a share, for the same period last year.
The results were below the $1.45 a share expected by a number of Wall Street analysts.
“What disappointed people was a fairly significant drop in gross margins from the previous quarter,” said Robert G. Herwick, president of Herwick Capital Management in San Francisco. Margins fell to 34.2% from 35.5% in the previous quarter and 37.3% a year ago.
Wall Street was also dissatisfied with slowdowns in HP’s workstation and disk drive businesses, although those problems appear to be temporary, Herwick said.
Palo Alto-based HP makes computers ranging from notebook and desktop models to powerful machines for many users. It is also a leading maker of computer printers and measurement equipment.
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San Francisco-based Gap’s fiscal first-quarter earnings rose 63%, beating analysts’ estimates, on higher sales and fewer markdowns.
The operator of the Gap, Banana Republic and Old Navy clothing chains had net income of $81.6 million, or 28 cents a share--topping the 23-cent average estimate of analysts. A year earlier, it earned $50.1 million, or 17 cents a share.
Although fewer markdowns and improved fashions account for some of the company’s earnings gains, Gap is snapping up market share created by the failures of major competitors such as Merry-Go-Round, said Alan Millstein, editor of Fashion Network Report.
“It has become a two-horse race between Gap and the Limited at the malls,” Millstein said. “They have been successful by taking market share from competitors--some by accident, some by luck and some by genius.”
At a Glance:
Barnes & Noble said its fiscal first-quarter loss widened as its profit margin narrowed. The bookstore company said its loss was $5.39 million, wider than its year-earlier loss of $5.29 million. Its per-share loss narrowed to 16 cents from 17 cents, however, because it had more shares outstanding.
Lands’ End said its fiscal first-quarter earnings more than tripled on lower expenses and higher sales from its specialty catalogs, rising to $4.41 million, or 13 cents a share, from $1.31 million, or 4 cents, a year earlier.
