Can HP Surprise? Key Earnings Report on Tap

Earnings season for the second quarter has been somewhat scattershot, with some firms sounding optimistic (Intel) while others have sounded nervous (Microsoft). HP would seem to be headed for a quarter similar to fellow tech giant IBM (NYSE: IBM), but there’s always the potential for surprise.

The company killed any potential for surprises by reaffirming its second-quarter earnings outlook, given during the first quarter earnings call. The company said that excluding a one-time charge, earnings would be in the range of $0.84 to $0.86 per share. It had given the same projections on a conference call to discuss first quarter earnings. Sales are expected to be off a modest two to three percent.

HP (NYSE: HPQ) is still digesting its massive $13.9 billion acquisition of EDS, and is in the process of cutting 25,000 jobs in the process, which will undoubtedly lead to charges. But HP has other headaches as well. It lost a patent dispute with Cornell University and the Cornell Research Foundation that dates back to 2002.

In the case, HP was found guilty of infringing upon the works of a Cornell professor in its PA-RISC line of processors. Since HP has dumped PA-RISC in favor of Itanium, the good news is the suit won’t affect future products.

Cornell won its case last year, to the tune of $184 million. On March 30, a U.S. District Court judge knocked that reward down to $53 million but HP is still appealing that. HP has created a reserve to pay for charges stemming from the case and expects to record a one to two cent earnings per share (EPS) charge to second quarter fiscal year 2009 EPS as a result.

Wall Street will also be keen to see if HP revises its profit forecast for the current fiscal year. As of now, analyst consensus is $3.71 for the year, but HP has put the number between $3.76 to $3.88 for the year.

If it reiterates or reaffirms that range, it could be an indicator of recovery and a return to growth, a very good sign. In reporting its first quarter numbers, HP reported weakness across the board; in every one of its businesses and in every market around the world.

Because HP’s earnings calendar is off by one month from the usual time periods, its quarter ended in April, not March like the bulk of firms. April had proven a better month than March, according to other firms that have already reported figures, which may help boost HP to the plus side.

What kind of guidance?

On the down side, there’s no telling what kind of guidance or visibility HP has into future quarters. Many companies have stopped giving guidance beyond one quarter. At least one analyst is not optimistic on one major part of HP’s business, and that’s PCs.

J.P. Morgan analyst Mark Moskowitz said Monday in a report he expected PC unit sales to decline by 9.9 percent in 2009 vs. 2008 numbers. While that’s better than the initial decline of 13.5 percent he’d originally made, he saw revenue for the industry falling more than 21 percent from the previous year.

Moskowitz believed that concerns over jobs and income would override the arrival of Windows 7, which Dell has said it expects will be a driver for growth.

The Street is also wondering what HP will do with the $11.255 billion in cash it’s currently hoarding. ForbesInvestopedia thinks the company is “allegedly still on the hunt for an appropriate acquisition” and that its shares have risen nearly 40 percent in less than two months. Of course, that’s after nosediving precipitously like most of the rest of the market.

HP reports its earnings after the close of market Tuesday, with a conference call to discuss the numbers at 5 pm EDT/2 pm PDT.

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