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HP Reports Modest Revenue Decline; Imaging and Printing Group Hit Harder

August 18, 2009
PALO ALTO, CA—Aug. 18, 2009—HP (NYSE: HPQ) today announced financial results for its third fiscal quarter ended July 31, 2009, with net revenue of $27.5 billion, down 2% from a year earlier and up 4% when adjusted for the effects of currency.

In the third quarter, GAAP operating profit was $2.2 billion and GAAP diluted earnings per share (EPS) was $0.67, down from $0.80 in the prior-year period. Non-GAAP operating profit was $3.0 billion, with non-GAAP diluted EPS of $0.91, up from $0.86 in the prior-year period. Non-GAAP financial information excludes $568 million of adjustments on an after-tax basis, or $0.24 per diluted share, related primarily to amortization of purchased intangible assets, restructuring charges and acquisition-related charges.

HIGHLIGHTS:

* Net revenue of $27.5 billion, down 2% from the prior year and up 4% in constant currency

* GAAP operating profit down 14% to $2.2 billion; GAAP earnings per share $0.67, down from $0.80 a year earlier

* Non-GAAP operating profit up 8% to $3.0 billion; non-GAAP earnings per share $0.91, up from $0.86 a year earlier

* Cash flow from operations of $3.9 billion, up 15% from the prior year

* Record Services profit of $1.3 billion

“HP’s performance this quarter is a result of our strong business portfolio, efficient cost structure and scale. We made positive gains in extending our market leadership in key segments and strengthening our competitive position,” said Mark Hurd, HP chairman and chief executive officer. “Business is stabilizing, and we are confident that HP will be an early beneficiary of an economic turnaround and will continue to outperform when conditions improve.”

Information about HP’s use of non-GAAP financial information is provided under “Use of non-GAAP financial information” below. Unless otherwise noted, all growth rates reflect year-over-year comparisons.

“Record profit in Services, double-digit revenue growth in China, and solid cash flow demonstrate HP’s ability to execute,” said Cathie Lesjak, HP executive vice president and chief financial officer. “We are investing for the future and executing operational efficiencies with the goal of driving long-term, profitable growth.”

Revenue grew 8% in the Americas to $12.6 billion. Revenue declined 12% in Europe, the Middle East and Africa and 4% in Asia Pacific to $9.9 billion and $5.0 billion, respectively. When adjusted for the effects of currency, revenue grew 11% in the Americas while declining 2% in Europe, the Middle East and Africa while Asia Pacific was flat. Revenue from outside of the United States in the third quarter accounted for 62% of total revenue, with revenue in the BRIC countries (Brazil, Russia, India and China) declining 6% over the prior-year period while accounting for 10% of total HP revenue.

Services

Services revenue increased 93% to $8.5 billion due primarily to the EDS acquisition. Infrastructure Technology Outsourcing posted revenue of $3.9 billion while Technology Services, Application Services and Business Process Outsourcing posted revenue of $2.4 billion, $1.4 billion and $711 million, respectively. Operating profit was $1.3 billion, or 15.2% of revenue, up from $567 million, or 12.9% of revenue, in the prior-year period. The EDS integration is tracking ahead of plan.

Enterprise Storage and Servers
Enterprise Storage and Servers (ESS) reported total revenue of $3.7 billion, down 23%. Storage revenue declined 21%, with the midrange EVA product line down 23%. Industry Standard Server revenue declined 21% and Business Critical Systems revenue declined 30%, while ESS blade revenue was down 14%. Operating profit was $356 million, or 9.7% of revenue, down from $544 million, or 11.5% of revenue, in the prior-year period.

HP Software

HP Software revenue declined 22% to $847 million. Business Technology Optimization declined 22%, and Other Software revenue declined 23%. Operating profit was $153 million, or 18.1% of revenue, up from $135 million, or 12.4% of revenue, in the prior-year period.

Personal Systems Group

Personal Systems Group (PSG) posted an increase of unit shipments of 2% and maintained the leading market position in PCs worldwide. PSG revenue declined 18% to $8.4 billion. Notebook revenue for the quarter was down 10%, while Desktop revenue declined 26%. Commercial client revenue was down 22%, while Consumer client revenue decreased 13%. Operating profit was $386 million, or 4.6% of revenue, down from $587 million, or 5.7% of revenue, in the prior-year period.

Imaging and Printing Group

Imaging and Printing Group (IPG) revenue declined 20% to $5.7 billion. Supplies revenue was down 13% due in part to continued channel inventory realignment, while Commercial hardware revenue and Consumer hardware revenue declined 37% and 21%, respectively. Printer unit shipments decreased 23%, with Commercial printer hardware units down 42% and Consumer printer hardware units down 16%. Operating profit was $960 million, or 17.0% of revenue, versus $1.0 billion, or 14.8% of revenue, in the prior-year period.

HP Financial Services
HP Financial Services (HPFS) reported revenue of $670 million, down 1% from the prior-year period. Financing volume increased 12%, and net portfolio assets increased 6%. Operating margin was 7.9% of revenue, up from 7.5% in the prior-year period.

Asset management
HP generated $3.9 billion in cash flow from operations for the third quarter. Inventory ended the quarter at $5.9 billion, down 10 days. Accounts receivable of $14.7 billion was up 4 days. Accounts payable ended the quarter at $12.8 billion, down 7 days. HP’s dividend payment of $0.08 per share in the third quarter resulted in cash usage of $191 million. HP utilized $999 million of cash during the third quarter to repurchase approximately 28 million shares of common stock in the open market. HP exited the quarter with $13.7 billion in gross cash.

Outlook

HP expects fourth quarter FY09 revenue to be up approximately 8% sequentially. Fourth quarter FY09 non-GAAP diluted EPS is expected to be approximately $1.12. Fourth quarter FY09 non-GAAP diluted EPS estimates exclude after-tax costs of approximately $0.15 per share, related primarily to the amortization of purchased intangibles, restructuring charges and acquisition-related charges. On a GAAP basis, fourth quarter FY09 diluted EPS is expected to be approximately $0.97.

For the full year 2009, HP expects revenue and earnings to be in-line with the mid-point of the outlook range provided on May 19, 2009.

More information on HP’s quarterly earnings, including additional financial analysis and an earnings overview presentation, is available on HP’s Investor Relations website at www.hp.com/investor/home.

HP’s Q3 FY09 earnings conference call is accessible via an audio webcast at www.hp.com/investor/q32009webcast.

About HP
HP, the world’s largest technology company, simplifies the technology experience for consumers and businesses with a portfolio that spans printing, personal computing, software, services and IT infrastructure. More information about HP is available at http://www.hp.com/.
 

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