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HP raises 2013 outlook as Whitman's plan takes hold

A Hewlett-Packard logo is seen at the company's Executive Briefing Center in Palo Alto, California January 16, 2013. REUTERS/Stephen Lam
A Hewlett-Packard logo is seen at the company's Executive Briefing Center in Palo Alto, California January 16, 2013. REUTERS/Stephen Lam

By Poornima Gupta

SAN FRANCISCO (Reuters) - Hewlett-Packard Co raised its 2013 earnings outlook after quarterly results beat low expectations, as CEO Meg Whitman's turnaround plan helped offset shrinking personal computer sales with enterprise computing services.

While fiscal second-quarter profit plummeted 32 percent, Wall Street had braced for worse. HP shares gained 14 percent after the company projected full-year earnings per share of $3.50 to $3.60, raising the lower end by 10 cents, and fiscal third-quarter profit that topped analyst estimates.

Whitman, who took the helm at the world's largest PC maker more than a year ago, is orchestrating a turnaround, trying to recapture some of the Silicon Valley icon's former strong growth. She has said the process could take years.

HP received a warmer welcome from investors for its results than smaller rival Dell Inc, which last week reported a 79 percent slide in profit and is now mired in a takeover battle between founder Michael Dell and activist investor Carl Icahn.

"This is another good deposit on the road to our turnaround here," HP Chief Financial Officer Cathie Lesjak said in an interview. "We are roughly where we want to be in total on the company."

Enterprise services and printing units are "probably a little bit ahead," she said, adding the two businesses helped drive the company's gross margin improvement during the quarter.

HP's net income fell to $1.08 billion, or 55 cents a share, from $1.59 billion, or 80 cents a share, a year earlier.

The company earned 87 cents per share on an operating basis during the second quarter on revenue of $27.6 billion.

HP had been expected to post earnings of 81 cents a share on revenue of just over $28 billion, according to the average estimate of analysts polled by Thomson Reuters I/B/E/S.

For its fiscal third quarter, it estimated non-GAAP earnings per share of 84 to 87 cents, higher than 83 cents expected by Wall Street analysts.

Its shares, which have climbed 51 percent in 2013 as investors gradually gained confidence in its prospects, rose 13 percent to $24.08 in extended trading after closing at $21.23 on the New York Stock Exchange.

STEEP DECLINE IN PC SALES

HP, whose name is synonymous with the birth of Silicon Valley, has suffered years of turbulence. Whitman became HP's third CEO in as many years after Leo Apotheker's abrupt dismissal.

She is now pushing layoffs, cost cutting, and expansion into markets and areas with longer-term potential such as enterprise computing services. The move, intended to bolster margins, pits HP against the likes of IBM.

HP is laying off 29,000 employees over the next two years and has written off $10.8 billion mostly related to the writedown of its EDS services business.

Lesjak said so far the company had reduced 18,800 jobs and intends to cut a total of 26,000 by the end of the year.

On Wednesday, the company reported that revenue fell across HP's main business divisions, with the steepest decline in the personal systems group. Sales from HP's largest, PC-focused unit dived 20 percent to $7.58 billion.

But that same division recorded a 3.2 percent operating margin, up from about 2.7 percent in the previous quarter, as the company focused on improving profitability.

The printing division had the smallest revenue decline, of 1 percent, year over year, but the company said it had a "strong operating margin" of 15.8 percent.

HP generated $3.6 billion in cash flow during the quarter and used some of the funds to reduce net debt by $1.8 billion to $2.9 billion. The company had $13.6 billion in gross cash at the end of the quarter.

(Reporting by Poornima Gupta; Editing by Richard Chang and David Gregorio)

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