Paper Jam: Stronger Dollar Cuts Into HP's Earnings Outlook

Samantha Sharf

Forbes Staff

Hewlett-Packard has joined a growing list of behemoth companies saying earnings have or will be diminished by the strong dollar.

The 76 year-old tech firm reported $26.8 billion in first quarter revenue, down 5% from a year earlier and short of Wall Street’s call for $27.3 billion in sales. The company says it was hit hard by currency headwinds and would have been down a more modest 2% from last year’s $28.3 million on a constant currency basis.

Net income came in at $1.4 billion. Earnings per share were down a penny to 73 cents as measured using generally accepted accounting principles. Using the company’s adjustments for currency and other items per share earnings were 92 cents, beating the Street by a penny.

“While we were able to manage the impact of currency in the quarter and deliver earnings as expected, we believe the impact on FY15 will be significantly greater than we anticipated in November,” said CEO Meg Whitman in a statement on the results. “We’ll work hard to offset these impacts through re-pricing and productivity, but fully mitigating currency movements of this size would require reducing investments and mortgaging our future. We won’t do that.”

The company now expects full year adjusted earnings per share to come in between $3.53 to $3.73. Previously the company had been projecting full-year adjusted earnings between $3.83 and $4.03. The full 30 cent decline is from the estimated currency impact. HP sees the second quarter which ends in April to contribute 84 cents to 88 cent in adjusted earnings per share. The Street had been expecting 96 cents.

The future Whitman referenced will look very different than the HP of today. Hewlett-Packard is in the midst of splitting into two. HP Inc will focus on printing and personal computers while Hewlett-Packard Enterprise will focus on business software and the cloud. Current Whitman will serve as CEO of Hewlett-Packard Enterprise and non-executive chairman on HP Inc’s board of directors. The deal was announced in October. It is expected to close by the end of this year and to cost the company approximately $1.50 in per share earnings. This one-time cost is excluded from the company’s 2015 outlook.

“With the first quarter of fiscal 2015 now behind us, the HP turnaround remains on track,” said Whitman. “We grew operating profit margins across all of our major business segments, increased investment in innovation, and executed well across key areas of our portfolio and in our separation activities.”

HP shares are up close to 30% year-over-year but have lagged the broader market so far this year declining 4% as of the closing bell Tuesday. In the hour following the earnings release shares shed around 5.5% from its closing price of $38.49.