HP biz split latest: 'I'm excited!' says CEO as investors exchange nervous looks

PC, printers still doing OK – but don't ask about the rest

HP performed about as well as the analysts expected for the fourth quarter of its fiscal 2014, which is to say it was another difficult quarter that put the cap on what has been a trying year for the tarnished tech titan.

Revenues for the quarter were down 2.5 per cent from the year-ago period, at $28.4bn. That sum missed Wall Street's expectations slightly, and it brought HP's total haul for fiscal 2014 to $111.5bn, which was flat from the previous year.

On the bright side, the firm reported total earnings before taxes of $3.2bn for the quarter and $11.3bn for the year, both of which were up nearly 5 per cent annually.

That translated into earnings of $1.06 per diluted share for the quarter, which was right in line with Wall Street's best guesses. Earnings for the full year totaled $3.74 per diluted share, which was up 5 per cent from 2013.

It all could have been worse, and leave it to CEO Meg Whitman to turn that into a positive. "I'm excited to say that HP's turnaround continues on track," Whitman said in a statement announcing the results.

A closer look at the numbers, though, reveals a company that still isn't firing on all cylinders, with the majority of its business divisions reporting declining revenues, rather than growth.

PCs to the ... rescue?

One bright spot in HP's portfolio was the Personal Systems division – which, yes, makes PCs. Despite ongoing softness in the PC market, the group's revenues for the fourth quarter were up 4 per cent, to $8.9bn. What's more, its earnings before taxes were up an impressive-sounding 34 per cent.

But the margins aren't great in the computer hardware business. Although Personal Systems accounted for 31.5 per cent of HP's revenue in Q4, it only contributed 11 per cent of its net earnings, at $355m.

Meanwhile, its sister unit, Printing, was in a bit of a slump. Its revenues were down 5 per cent from the year-ago quarter, to $5.7bn, while its net earnings were just $1.04bn, a 3.8 per cent year-on-year decline.

The result was that Personal Systems and Printing combined brought in $14.7bn for the three months ending on October 31, which was flat from the same period a year ago. And their earnings before taxes were $1.4bn, which was a humdrum 3.6 per cent gain.

Looking at the entire year, the results weren't much better. Combined, Personal Systems and Printing saw sales of $57.3bn, which was up 2 per cent over 2013. Their net earnings did show improvement, though, climbing 11 per cent, to $5.5bn.

Countdown to splitsville

It's important to look at those two divisions together, and not just because HP has traditionally reported lump sums for them. Personal Systems and Printing are the two groups that will be spun off to form HP Inc under Whitman's radical plan to split the company in two, with Whitman assuming the role of non-exec chairman at the new firm.

That plan will see the rest of HP's businesses continue under the umbrella of HP Enterprise, where Whitman will be CEO. And here's where it gets troubling, because all four divisions that will form that company – including the Enterprise Group, Enterprise Services, Software, and HP Financial Services – saw their revenues shrink versus what they were in 2013, both for the fourth quarter and for the entire year.

Lumped all together, these four divisions brought in revenues of $14.8bn for Q4 and $57.6bn for the year, which was down 4.7 per cent and 3.6 per cent, respectively, as compared to 2013. If HP Enterprise were a standalone company already, it would have been an inauspicious start.

But HP Enterprise doesn't exist as its own entity yet, and it will be a while yet before it does. The split isn't expected to occur until the end of HP's fiscal 2015, which will wrap up next October.

Still, investors weren't sure what to make of HP's latest results, which show a company still struggling to get back on its feet after years of management missteps. HP's share price climbed ever so much on the news, then began sinking again in after-hours trading. ®

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