Hewlett-Packard (HPQ) Earnings Preview

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Hewlett-Packard is scheduled to report 1Q08 earnings after the close tonight with a conference call following at 5:00 ET. Current consensus is for EPS of $0.81 on revs of $27.6 bln...

Guidance: On 12/11, at its analyst day, HPQ reaffirmed FY08 EPS and revs of $3.74-$3.37 and $111.5 bln respectively. The company also issued in-line EPS and revenue guidance for FY09...

Recent Earnings History:
Q4 (11/19): HPQ beat by $0.04 and beat on revs. The company issued upside EPS and rev guidance for Q1. The stock closed slightly higher the following day;
Q3 (8/16): HPQ beats by $0.05 and beats on revs. The company guides Q4 EPS and revs above consensus. The stock closed higher by ~2% the next day;
Q2 (5/16): HPQ reports EPS and revs in-line. The company re-affirms guidance for Q3. The stock closed slightly higher the next day;
Q1 (2/20): HPQ beat by $0.03 and beats on revs. The company also issued in-line EPS guidance and upside rev guidance for Q2. The stock closed lower by almost 5% the next day...

Analyst Expectations: Analysts are generally expecting an in-line or slightly better quarter. UBS says that while revs decelerated somewhat in PCs and printers over the last two months, HPQ is experiencing a mix shift toward enterprise segments that could help gross margins. Also, the firm says HPQ has plenty of room to cut more costs and could even accelerate share repurchases if necessary...

Key Metric: Gross Margins: Current street expectations are for gross margins of 24.3%...

Areas of Focus on the Call:
1) PC and Notebook Demand: Other technology bellwethers, such as INTC and MSFT, have estimated PC growth between 10-12% for FY08. Whether HPQ shares approx the same outlook will be of significance. Also, HPQ has been taking share in PCs and notebooks over the past few quarters; market participants will be listening for a continuation of that trend;
2) Enterprise Spending Environment: Commentary regarding enterprise spending, particularly in US and Europe, will likely be a focus on the call. On the Q4 call, mgmt stated that they were not seeing a slowdown at that time. A strong uptake of MSFT's Vista may be the driver behind a more favorable outlook in commercial spending;
3) Gross Margins: Current analyst expectations for Q4 gross margins are 24.3%. Upside to this estimate could be driven by favorable component pricing;
4) Storage Segment: Last quarter, storage grew 7% y/y, and the company expressed optimism that they could improve in this segment. According to Caris, HPQ's Blade servers may have had a competitively strong quarter vs. IBM's servers...