Foreign sales bolster HP profit

SAN FRANCISCO - Strong demand outside the United States for Hewlett-Packard Co.'s computers, printers and other products widened its profit margin in its second quarter, but investors worry the trend will break as HP digests Electronic Data Systems Corp. this year.

The results released yesterday came as no surprise because the Palo Alto, Calif., company provided a snapshot of its latest quarterly earnings and revenue last week, when it announced its planned $13.2 billion acquisition of technology-services specialist EDS.

The deal has raised concerns that EDS, of Plano, Texas, will cause more harm to HP than it is worth and slow the financial momentum building at HP since it hired Mark Hurd as chief executive officer three years ago.

Echoing remarks from a week ago, Hurd reassured reporters yesterday that the acquisition would pay off.

"Make no mistake about it: We will get the cost right, and we will create value for shareholders," Hurd said during a conference call.

In its second quarter, which ended in April, HP said it earned $2.06 billion, or 80 cents a share. That was a 16 percent increase from a profit of $1.76 billion, or 65 cents a share, a year earlier. Revenue rose 11 percent to $28.3 billion.

Excluding acquisition costs, HP said operating profit margin rose to 10 percent in the second quarter, up from 9 percent a year earlier.

HP also reiterated an improved earnings outlook that it gave a week ago.

But the solid second-quarter performance and upbeat forecast for the rest of the year so far have not been enough to fully restore the erosion in HP's stock price since news of the EDS deal leaked out.

HP shares are down about 6 percent since then.

HP shares fell 25 cents to finish at $46.46 yesterday, then shed an additional 26 cents in extended trading.

The financial breakdown released yesterday provided more insights about the factors propelling HP's growth.

Like several other large technology companies, HP's international diversity is helping to offset the debilitating effects of the U.S. economy's weakness. Markets outside the United States accounted for 70 percent of HP's revenue in the second quarter.

Hurd has hired salespeople and acquired companies to expand sales, even as he has cut other jobs and combined operations. Demand in fast-growing economies such as Brazil and China has offset a slide in U.S. spending, the world's largest market for PCs.

"The emerging markets have been growing quite well," Louis Miscioscia, an analyst with Cowen & Co. in Boston, said. "You've also had a depreciating dollar, which definitely appears to help sales."