Tuesday, March 15, 2011

HP Makes it Up: Wall Street Cheers

Well, Hewlett Packard finally gave Wall Street’s Finest what they wanted.

Ever since Mark Hurd’s unceremonious dismissal, WSF have been pestering HP to define itself and its prospects, in much the same way that IBM defines itself and its prospects.

And yesterday HP finally did just that.

The answer, in case you haven’t seen it already, is this: HP will generate “at least” $7.00 in earnings per share by Fiscal Year 2014.

How, exactly, HP will get there is left somewhat to the imagination.

It does involve things like “connectivity” and “cloud” computing—two buzz words that are today’s version of the Internet Bubble-era “eyeballs”—and it relies, apparently, on the same kind of accounting hocus-pocus HP perfected during the Hurd years. (See “Hurd by Numbers” from August, 2010: http://jeffmatthewsisnotmakingthisup.blogspot.com/2010/08/hurd-by-numbers.html)

That’s because the $7.00 in “EPS” is a “Non-GAAP” figure—that is, it uses accounting principles that aren’t generally accepted by accountants.

For example, HP routinely excludes expenses related to past acquisitions to arrive at “Non-GAAP” earnings, even though it routinely includes the revenues from those acquisitions in its “Non-GAAP” sales.

If money managers could do that, they’d never have a down day, let alone a down year.

Still, Wall Street’s Finest like few things more than perceived certainty, and in this case the comfort of a specific earnings figure they can plug into their spreadsheets appears to be enough given the huzzahs from various quarters.

We will see how HP does in the next few years meeting that target, but we’ll make one bold prediction: since HP can exclude pretty much anything the company wants to exclude from “Non-GAAP” earnings so long as Wall Street’s Finest buy it, we will bet dollars to donuts the company will “beat the number” by at least a penny.

Jeff Matthews
I Am Not Making This Up

© 2011 NotMakingThisUp, LLC

The content contained in this blog represents only the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice, and should never be relied on in making an investment decision, ever. Also, this blog is not a solicitation of business by Mr. Matthews: all inquiries will be ignored. The content herein is intended solely for the entertainment of the reader, and the author.


Dave Everywhere said...

The more I read your blog, the less faith I have in modern capitalism, especially the version practiced by WSF. "we exclude all the bad stuff and include all the good stuff" isn't the Graham and Doo I remember.

Rich said...

They could reincorporate in Hong Kong, and make HKD the functional currency.

Anonymous said...

While HP's analyst and media event was insufferably lame, and their roadmap to "cloud" glory is about as transparent as axle grease, you can rest easy that they will find a way to blow past that $7 figure, and the sell side will clap and cheer the whole time.

intrinsic said...

Its all profits if you exclude the costs. Just saying

Doug said...

Good post Jeff, love your work, keep at it, but do you think you could provide us a little color on the whisper number next time?