Excerpts from analysis of HP's 1QDY06 results (Feb 15, 2006)

Annex Bulletin 2006-10 February 15, 2006

Excerpts from CONFIDENTIAL client edition

INDUSTRY TRENDS

Updated 2/15/06, 7:30PM MST

Analysis of Hewlett-Packard's First Quarter FY06 Results

Recovery Continues

HP Reports Another Solid Quarter on Its Road to Recovery

SCOTTSDALE, Feb 15 - Hewlett-Packard (HP) reported another solid quarter after the markets closed today, sending the stock up nearly four points in after-hours trading to new six-year highs. Earlier today, HP shares declined 2.5 points in regular trading ahead of its first quarter fiscal year 2006 earnings release. But the actual results showed that the recovery under the leadership of Mark Hurd, who took over as HP CEO last April, is clearly continuing unabated.

[snip]

Geographies. Worldwide revenues were up 6% (up 8% in constant currency), with North America leading the world with a 10% increase to $9.7 billion. Asia/Pacific also showed respectable growth (up 6% to $3.5 billion), while Europe grew only 1% to $9.4 billion. Sequentially, however, Europe was the only region to grow in the last two quarters, with Eastern Europe leading the way, while Western Europe continued to be sluggish.

But it was the "emerging markets" that showed the best growth. "China and India were exceptionally strong," said Hurd. "China is no longer an 'emerging market'; it has emerged," he added with a great deal of emphasis on the last verb.

[snip]

Product Lines. Among the HP product lines, the Imaging and Printing Group, which accounts for the biggest share of the company's overall earnings, reported an 8% increase in revenues (to $6.5 billion). Operating profit rose from $932 million to $973 million, a 14.9% margin. By contrast, rival Lexmark last month posted a 47% drop in profit, hurt by tough price competition.

[snip]

Outlook

So things are evidently improving across the HP product lines and in most geographies. Looking ahead, the company expects full fiscal year 2006 revenues to be in the $90 billion to $91 billion range, with net earnings of $1.90 to $1.95 per share. Which is higher than the $1.83 per share average that Wall Street expected prior to today's release.

The turnaround is evidently continuing, and with it, the HP stock keeps moving up.

[snip]

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Volume XXII, Annex Newsflash 2006-10
February 15, 2006

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