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August 17, 2005
Hewlett-Packard blow-out? Wed., August 17, 2005, 5:47 AM
Was that Miracle on 34th, or Wall, Street?
This morning you will be told about a blow-out quarter by Hewlett-Packard (NYSE: HPQ). This is nothing more than accounting trickery hitting the Wall Street hype machine. It's what they will tell you is the rubber hitting the road, and I'll say is just another case of Wall Street trying to suck and blow at the same time.
Enough already with this EBITDA game.
As the AP article states: HP earned $1.06 billion, or 36 cents per share, compared with profit of $728 million, or 24 cents per share, in the third quarter of fiscal 2004. Sales rose 10 percent, to $20.8 billion, from $18.89 billion in the third quarter of fiscal 2004. On a pro forma basis, the results beat Wall Street estimates. Analysts were expecting the Palo Alto-based company to earn 31 cents per share on sales of $20.47 billion."
The AP article also states: For the three months ended July 31, HP earned $73 million, or 3 cents per share, compared with $586 million, or 19 cents per share, in the same period last year. Profit fell due to one-time tax adjustments from the repatriation of $14.5 billion in foreign earnings." Three cents or 36 cents? Hmmmm.
So Wall Street will tell you today there is an operating epiphany presently underway under new HP CEO Mark Hurd.
And I say that's highly doubtful if, as is true, DELL and IBM and INTEL (NDQ: INTC) are struggling in the marketplace. Improvement yes; but turnaround, no.
And how can I presume the latter? Just by looking at the DELL, IBM, and INTC stock charts. That's how.
If there truly is such a miracle underway at Hewlett-Packard, I believe the phenomenon is not possibly just a local miracle.
In any event, yesterday was a bad day on the Street for the Street-talkers, so today you are going to hear about miracles. On last evening's Kudlow Show, while referring to these financial results, Larry himself told us all about it as he exclaimed: You've saved us!"
So, I guess it's possible that the Religious Right has converted the Street.
But, I say there should be a separation of church and street. :-)
This chart shows that IBM, with about 50 pct of revenues coming from consulting services, is doing relatively better than HP in the past three months. Dell and Intel, with more reliance on manufacturing and distribution, have not done as well.
My point is that if HP was experiencing some kind of "miracle", this phenomenon would be felt industry wide, and there is no sign of it.
So all the fuss today over HPQ is like the Shakespearean play, Much Ado About Nothing.
Posted by Posted by Bill Cara on August 17, 2005 05:47:27 AM | Category: 45 Info Technology
Sometime ago the sage of Omaha, Warren Buffett, wrote a scathing treatise on the use of EBITDA for any valid financial analysis. I believe he even said he looked askance at any firm that had an EBITDA line in their reported financials. EBITDA is and can be subject to a lot "financial engineering", all within the bounds of generally accepted accounting principles.
Posted by: william baldwin at August 17, 2005 10:54 AM [link]