Leaking good news to mask the bad news later

Felix Salmon of Reuters writes about how Hewlett-Packard last week leaked some news to a Bloomberg News reporter that would boost its stock before it released some bad news — that its earnings would be much lower than expected.

Salmon writes, “HP was still spinning, though: its official news release was headlined ‘HP Confirms Discussions with Autonomy Corporation plc Regarding Possible Business Combination; Makes Other Announcements.’ Among those ‘other announcements’:

FY11 GAAP diluted EPS is expected to be in the range of $3.59 to $3.70, down from its previous estimate of at least $4.27.

“In English? ‘We’ve been telling shareholders to expect earnings of at least $4.27 per share this year. But actually we’re not going to come close. In fact, we’re not going to make more than $3.70, and we might make as little as $3.59.’

“The drop from $4.27 to $3.59 is a whopping 16% — a huge miss, given that we’re already more than three quarters of the way through Hewlett Packard’s fiscal year. HP didn’t even attempt to guess what 2012 might hold in stock, perhaps because it’s likely to take most of that year to slough off the PC business it poured so much money into back in 2002.

“And so when HP shares opened for trading today, they fell sharply — just as Zero Hedge predicted they would. They’re now trading at less than $24 per share — a 20% fall from the closing price yesterday and a whopping 31% fall from the post-leak knee-jerk exuberance levels of about 12:15pm or so yesterday.

“We still live in a world, sadly, where it’s considered good journalism to get a scoop like Bloomberg’s and to move the market by publishing it — in the world of financial journalism, moving markets like this is the gold standard of what editors and proprietors are looking for. Even if you move them in what turns out to have been entirely the wrong direction, with a one-sided story which leaves out the most important news of the day.”