Hewlett-Packard’s (HPQ) fourth-quarter fiscal 2014 non-GAAP earnings of $1.06 per share beat the Zacks Consensus Estimate by a penny. Reported earnings increased 4.9% from the year-ago quarter and were toward the higher end of management’s guided range of $1.03 to $1.07 per share, primarily due to cost control measures and lower share count.

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H-P reported revenues of $28.4 billion, which not only decreased 2.5% year over year but also lagged the Zacks Consensus Estimate of $28.8 billion. The downside was primarily due to lower sales in the Printing and Enterprise (Group and Services) businesses.

Segmental Revenues

Personal Systems revenues increased 4% year over year to $8.95 billion, primarily due to a 7% increase in commercial revenues. The company also witnessed a 5% year-over-year increase in unit shipments.

Growth in commercial revenues was driven by strong demand for commercial desktops and notebooks. The ongoing upgrade of H-P’s installed base and the expiration of the Windows XP operating system also aided segment revenues. The Consumer segment however declined 2%. Nevertheless, demand in Americas and EMEA regions remained strong during the quarter.

Revenues from notebooks were up 9% year over year, while unit sales increased 8% from the year-ago quarter, aided by higher sales of x360 convertible notebooks. Desktop revenues decreased 3% from the year-ago quarter while units sold were down 2% on a year-over-year basis.

Printing revenues were down 5.1% year over year to $5.74 billion, primarily due to a 7% decline in supplies revenues and a 9% decline in consumer hardware revenues. Commercial hardware revenues increased 1% on a year-over-year basis. H-P’s total hardware unit sales were down 1% year over year, primarily due to a 4% decline in consumer unit shipments. Although H-P’s Officejet Pro X and Officejet Pro X Enterprise products witnessed growth, the overall segment was impacted by lower sales of its old product range.

Revenues from the Enterprise Group were down 4% from the year-ago quarter to $7.27 billion, primarily due to lower revenues from Industry Standard Servers (down 2%), Storage (down 8%),Business Critical Systems (down 29%) and Technology Services (down 3%). which more than offset the revenue increase in Networking (up 2%).

Enterprise Services revenues were down 6.9% year over year to $5.51 billion, impacted by main account run-off. Revenues were impacted by a 6% decline in Application and Business Services revenues and a 7% drop in business IT Outsourcing revenues.

Software revenues were down 0.6% year over year to $1.09 billion primarily due to a decrease in Support revenues (down 1% year over year) and Professional services revenues (down 5% year over year). Nonetheless, License revenues were up 2% while SaaS revenues were flat on a year over year basis. The company reported strong bookings in IT Management.

HP Financial Services revenues declined 0.7% year over year to $906 million primarily due to a 1% decline in net portfolio assets. However, financing volume increased 15% year over year.

Operating Results

H-P’s gross margin was up 160 basis points (bps) on a year-over-year basis to 24.6%, primarily due to improvements in the Personal Systems segment and lower cost of service. H-P’s non-GAAP operating expenses were up 3.9% from the year-ago quarter to $4.24 billion, primarily due to higher investments in research and development. As a percentage of revenues, expenses were up 92 bps. Non-GAAP operating margin increased 68 bps on a year over year basis to 9.7%, primarily due to favorable market opportunities coupled with cost control measures.

H-P’s non-GAAP net income came in at $2.01 billion or $1.06 per share compared with $1.96 billion or $1.01 per share reported in the year-ago quarter.

Balance Sheet and Cash Flow

The company ended the fourth quarter with $15.13 billion in cash and cash equivalents versus $14.47 billion in the previous quarter. The company had long-term debt of $16.04 billion compared with $17.13 billion in the previous quarter.

H-P generated $2.70 billion in cash from operations. During the quarter, the company repurchased shares worth $750 million and paid dividends of $309 million.

Guidance

H-P expects its non-GAAP earnings for the first quarter of 2015 to range between 89 cents and 93 cents per share while the Zacks Consensus Estimate is pegged at 92 cents.

For first quarter 2015, H-P expects strong momentum in Personal Systems buoyed by strength in its product lineup. The company also expects Commercial PC to grow as the XP refresh is likely to be completed.

Also, the company expects supplies revenues in the Printing segment to stabilize in the forthcoming quarter. Furthermore, the company’s ongoing restructuring program remains on track.

The company expects fiscal 2015 earnings to range between $3.83 and $4.03 per share. The Zacks Consensus Estimate is now pegged at $3.95 per share.

The company targets 55,000 job cuts by the end of fiscal 2015.

Summary

Hewlett-Packard reported mixed fourth quarter fiscal 2014 results, with the bottom line beating the Zacks Consensus Estimate but the top line missing the same.

H-P’s cost cutting initiatives and improvement in the PC segment were the positives in the quarter. The company’s traction in the cloud, security and Big Data segments are expected to be the growth catalysts, going forward. We believe that Hewlett-Packard’s strategic focus on the software business will help it to diversify its revenue source, which is still predominantly dependent on PCs.

Nonetheless, macroeconomic challenges and tepid IT spending remain near-term concerns. Competition from International Business Machines (IBM) and Oracle (ORCL) should not be discounted as well.

Hewlett-Packard has a Zacks Rank #3 (Hold).

Investors may consider Micron Technology (MU), which is a better-ranked stock with a Zacks Rank #1 (Strong Buy).

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