Strong US dollar hurts HP's earnings forecast, shares plummet

NEW YORK (Reuters) - Hewlett-Packard reported flat or lower quarterly revenue in all its operating units on Tuesday, and forecast full-year earnings well below analysts' expectations due to the strong US dollar.

Its shares tumbled 6.7 per cent in after-hours trading.

HP follows Microsoft Corp and International Business Machines Corp in seeing a negative impact from the strong dollar. HP took about two-thirds of its revenue from outside the United States in the year ended October 2014. The dollar had risen 14.7 per cent in the last six months through Tuesday.

The world's No. 2 PC maker, which has struggled to adapt to the new era of mobile and online computing, is preparing to split into two listed companies later this year, separating its computer and printer businesses from its faster-growing corporate hardware and services operations.

"Revenue was a little short on the top end, the guidance for the second quarter was a little below where the consensus was," said Daniel Morgan, a portfolio manager at Synovus Trust Co. "Let's wait till October, see if this split is really going to create the shareholder value that (CEO) Meg Whitman is hoping for."

HP has not projected the total cost of its separation plan, but said on Tuesday it will amount to about US$1.50 per share this fiscal year, which works out at about US$2.7 billion overall, although some overseas tax-related costs will be recuperable.

The combined effect of those separation costs and the hit from the strong dollar will almost halve HP's free cash flow this fiscal year to about US$3.5 billion to US$4 billion, down from three months ago when it forecast US$6.5 billion to $7 billion.

HP said it expected adjusted profit of $3.53 to $3.73 per share for the full year ending October, due to a 30 cents per share hit from currency, well below analysts' average estimate of $3.95.

Revenue dropped 4.7 per cent to US$26.84 billion in the first quarter ended Jan. 31. Revenue from HP's enterprise services unit declined 11 per cent.

The company's net income fell to US$1.37 billion, or 73 cents per share, from US$1.43 billion, or 74 cents per share, a year earlier.

Excluding items, the company earned 92 cents per share.

Analysts on average had expected a profit of 91 cents per share and revenue of $27.34 billion, according to Thomson Reuters I/B/E/S.