Earnings: Sears, Hewlett-Packard Co., Dell

Earnings: Hewlett-Packard Co. | Sears | Dell Inc.

Sears Posts Higher Profit

CHICAGO (Reuters) - Sears Holdings Corp. (SHLD) Thursday posted higher quarterly profit, helped by a litigation gain and cost-cutting efforts that more than offset slumping sales at its namesake stores.

The retailer headed by hedge fund manager Edward Lampert said profit rose to $294 million, or $1.88 per share, in the second quarter that ended on July 29 from $161 million, or 98 cents per share, a year earlier.

Analysts on average expected $1.67 per share, with forecasts ranging from $1.46 to $1.90, according to Reuters Estimates. The retailer does not provide financial outlooks, so analysts' estimates tend to vary widely.

Sears Holdings, the company formed when Kmart bought Sears, Roebuck and Co. last year, has been cutting costs and eliminating clearance sales to boost profits. The result has been strong cash flow, but weak sales.

The stock is up about 27 percent this year, while the Standard & Poor's retailing index is roughly unchanged. Sears trades at 14.6 times analysts' profit forecasts for next year, below the index's average valuation of 15.9 times earnings.

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Hewlett-Packard Profit Surges, Beats Forecasts

SAN FRANCISCO (Reuters) - Hewlett-Packard Co. (HPQ), the world's No. 2 maker of personal computers, said Wednesday quarterly profit surged from a year ago, beating forecasts as revenue increased in all its main businesses.

HP issued a forecast that topped analyst estimates and its shares rose nearly 5 percent in extended trading after closing up 1.3 percent at $34.43 in regular trading on the New York Stock Exchange.

HP also announced plans to buy back as much of $6 billion of its stock.

Led by Chief Executive Mark Hurd, HP has taken market share from rival Dell Inc., the No. 1 PC maker, as it cuts costs while chipping away at Dell's traditional price advantage as industry prices decline. Hurd is eliminating 15,300 jobs, or 10 percent of the workforce, to save $1.9 billion annually.

"What this reflects is to some extent better cost-cutting and very much better executing," said Cindy Shaw, an analyst with Moors & Cabot Capital Markets who has a "buy" rating on the stock. "They are on a roll."

HP forecast fourth-quarter earnings per share of 61 cents to 63 cents before special items and revenue of $24.1 billion. Analysts, on average, have been forecasting earnings per share of 59 cents on that basis and revenue of $24 billion.

Net income for the fiscal third quarter ended July 31 rose to $1.38 billion, or 48 cents per share, from $73 million, or 3 cents per share, a year earlier, when HP had a charge of almost $1 billion, mainly in taxes, for returning income earned abroad. Revenue advanced to $21.9 billion from $20.8 billion.

HP, based in Palo Alto, California, reported earnings per share of 52 cents per share before special items, exceeding analysts' average forecast of 48 cents, as compiled by Reuters Estimates. Analysts had pegged revenue at $21.8 billion.

Hurd said competition in the PC market, cited by Dell as a reason for lowering its quarterly earnings forecast last month, was not "extraordinarily different" from past periods.

"We continue to see a competitive environment," Hurd told reporters on a conference call. "But I don't notice anything uniquely different in the competitive environment."

HP said revenue grew 5 percent to $6.2 billion in its imaging and printing division, which in the second quarter accounted for about a third of revenue and 52 percent of operating earnings.

Revenue in HP's personal systems group, which includes desktop and notebook computers and accounts for about a third of total revenue, rose 8 percent to $6.9 billion, HP said. The unit posted a gross profit margin of 4 percent.

The enterprise storage and servers group, which includes server computers for business clients, had revenue growth of 3 percent to $4.1 billion, with server revenue up 6 percent.

HP shares trade at about 16 times estimated 2006 earnings per share, compared with a multiple of 19 at Dell.

HP has been gaining PC market share, especially in the United States, while Dell's share was little changed in the three months through June, according to estimates by market researcher IDC. HP holds 20 percent of the U.S. PC market compared with Dell's 34 percent.

Dell Reports 51 Percent Drop in Profit

SAN FRANCISCO (Reuters) - Dell Inc. (DELL) reported Thursday a 51 percent drop in profit and said securities regulators are conducting an informal investigation related to revenue recognition and other accounting matters.

Shares of the world's largest personal computer maker fell 4.8 percent in after-hours trading. Dell said the U.S. Securities and Exchange Commission told it in August 2005, that it was conducting an informal investigation of the company.

The company did not disclose the matter earlier because "we are under no obligation to disclose it," spokesman Jess Blackburn said.

Net income for the three months ended Aug. 4 fell to $502 million, or 22 cents per share, from $1.02 billion, or 41 cents per share, a year earlier. Revenue advanced 5 percent to $14.1 billion, the slowest growth in at least three years, even though Dell cut prices to boost market share.

Analysts, on average, had forecast profit of 22 cents per share on revenue of $14 billion. Dell, in a preliminary earnings announcement July 21, said earnings would fall about 30 percent short of forecasts because of "aggressive pricing" in a slowing commercial market.

No. 2 personal computer maker Hewlett-Packard Co. Wednesday reported better-than-expected quarterly profit as it took market share from Dell, which can no longer rely on price advantages from its direct-sales model to trump rivals and is struggling to improve its battered image.

The company launched the biggest electronics recall in U.S. history this week after faulty Sony Corp. battery cells caused several of its laptops to overheat and burst into flames.

Dell's stock, down 40 percent in the past 12 months, trades at about the same multiple to expected per-share earnings as Hewlett-Packard, whose stock is up 41 percent in that period.

The company also said it plans to introduce Dimension consumer desktop PCs with microprocessors from Advanced Micro Devices Inc. next month, extending a relationship with AMD announced in May.

Dell said three months ago it would end its 22-year exclusive relationship with No. 1 semiconductor maker Intel Corp. and start using AMD chips in high-end business servers.

Dell's broadening relationship with AMD had been anticipated by analysts, including Citigroup's Glen Yeung, who in June said he expected Dell to offer a desktop PC with an AMD microprocessor in September.

Yeung said he and colleagues based their conclusion on talks with PC component makers in Asia.

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