If Hewlett-Packard Gets Earnings Beat, It Will Be From Cost Cutting

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Hewlett-Packard (HPQ) will report earnings after the market close today. The Street is expecting the company to report earnings of $0.85 per share on revenues of $25.44 billion for its fiscal third quarter, ended July 31. For the October quarter, the Street moves up to earnings of $1 per share on revenues of $26.8 billion.

I think the company will meet and maybe even slightly beat, albeit by a hair, on earnings, but revenue estimates for the July and October quarters could be at risk. The beat, if we get one, will be based on cutting costs mainly and not on anything else per se.

HPQ shares have been battered and bruised in the last several months with downgrades, lowered price targets and whatever else the sell side could throw at the company and its stock.

At best, investors could maybe get a dead-cat bounce in HPQ post results given fresh 52-week lows today and the absolute plethora of bad news associated with anything in PCs and printers.

The shares trade at 7.2x estimated Street earnings of $3.80 per share for the fiscal year ending Oct. 31, 2016. In fact, in the global market beat-down today, HPQ shares have made a fresh 52-week low.

A few data points to look for in the company's press release and subsequent earnings conference call are:

-- What does the company say about its business in China and the rest of Asia?

-- How much of a negative impact has currency had on the company in the quarter and going forward, especially given the strength in the greenback? In addition, last week's yuan devaluation and the potential for a global FX war are also comments that should be asked and answered on the company's conference call.

-- Another area of focus is the company's printing business, which was once its cash cow and is now riddled with issues, to say the least.

-- Watch for comments from management about the state of the PC market. Everybody up and down the PC food chain has been hit hard by the slowdown in PCs and the research companies continue to slash their forecasts going forward in the sector.

Many investors are hanging on their investment in HPQ in the hopes the company will separate into two businesses, HP Inc. (PCs and printers) and HP Enterprises (hardware sales to enterprises), so that they might see a good return on their investment.

To that hope I say, good luck.

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