Rising Inflation Drags Stocks; HP Shines

123jump.com Staff
20 Feb, 2008
New York City

U.S. stocks declined as inflation rose in January. CPI in January increased at 0.4% and core rate of inflation increased at 0.3%. January inflation rose at 4.3% from a year ago on a rise medical and travel services and rising food and energy prices. Housing start increased at 0.8% in January after revised decline of 14.8% in December. Hewlett Packard increased after reporting a better than expected earnings and lifting the outlook for the next quarter.

[R]10:30AM New York – U.S. stocks declined after a sharp rise in inflation index.[/R]

Stock futures declined in the early trading after the release of inflation data, earnings from Hewlett Packard and downgrades on telecom stocks.

Consumer price index increased 0.4% in January from December and 4.3% from a year ago on rising food and energy costs. Core inflation, excluding food and energy prices, increased 0.3%. While it is fashionable in the media to exclude food and energy prices and not focus on the total inflation, energy and food form 25% of household cost of most people in the U.S.

Housing, or the owner equivalent rent, increased only 0.3% in the month, forms 40% of the index. The so called OER, lags the real price increases in the market and still does not reflect more than 100% price in home values in the last four years. The relevance of the inflation data is increasingly in question.

While the Fed has lowered interest rate by 2.5% in the last five months, inflation has been stubborn and the Fed may be forced to increase rates if prices of medical and travel services, and food and energy remain at elevated levels.

KKR Financial Holdings fell 20% after it deferred payment for the second time on the commercial paper back by assets.

HP ((HPQ)) reported its first fiscal quarter ended Jan. 31, 2008, with net revenue of $28.5 billion, up 13% from a year earlier and up 8% after adjusting for currency gains.

In the first quarter, operating profit was $2.6 billion and diluted earnings per share were $0.80, up from $0.55 in the prior-year period, an increase of 45%. Operating margin in the quarter increased to 9.2% from 7.3%.

Non-GAAP operating profit was $2.8 billion, with non-GAAP diluted EPS of $0.86 up from $0.65 in the prior-year period. Non-GAAP financial information excludes $158 million of adjustments on an after-tax basis, or $0.06 per diluted share, related primarily to amortization of purchased intangibles.

Revenue in the Americas grew 8% on a year-over-year basis to $11.2 billion. Revenue grew 15% in Europe, the Middle East and Africa to $12.3 billion. Revenue grew 22% in Asia Pacific to $4.9 billion.

When adjusted for the effects of currency, revenue in the Americas grew 7%, revenue in Europe, the Middle East and Africa grew 7%, and revenue in Asia Pacific grew 16%.

Revenue from outside of the United States in the first quarter was 69%, with revenue in the BRIC countries (Brazil, Russia, India and China) growing 35% over the prior-year period and accounting for 9% of total revenue.

HP estimates second quarter revenue between $27.7 billion to $27.9 billion and diluted earnings per share to be approximately $0.77 to $0.78 and non-GAAP diluted earnings per share to be between $0.83 and $0.84. Second quarter earnings estimates exclude after-tax costs of approximately $0.06 per share, related primarily to the amortization of purchased intangibles.

HP estimates fiscal year revenue between $113.5 billion and $114.0 billion and diluted earnings to be in the range of $3.26 to $3.30, and non-GAAP diluted earnings in the range of $3.50 to $3.54. Non-GAAP diluted earnings estimates exclude after-tax costs of approximately $0.24 per share, related primarily to the amortization of purchased intangibles.