HP (NYSE: HPQ)
● |
First quarter GAAP diluted net
earnings per share ("EPS") of $0.46, above the previously provided
outlook of $0.39 to $0.42 per share |
● |
First quarter non-GAAP diluted
net EPS of $0.65, above the previously provided outlook of $0.53 to
$0.56 per share |
● |
First quarter net revenue of
$14.6 billion, down 0.6% from the prior-year period |
● |
First quarter net cash
provided by operating activities of $1.3 billion, free cash flow of
$1.1 billion |
● |
First quarter returned $0.9
billion to shareholders in the form of share repurchases and
dividends |
HP Inc.
fiscal 2020 first quarter financial performance |
|
|
|
Q1 FY20 |
|
Q1 FY19 |
|
Y/Y |
|
GAAP net revenue ($B) |
|
$ |
14.6 |
|
|
$ |
14.7 |
|
|
(0.6 |
)% |
|
GAAP operating margin |
|
5.9 |
% |
|
6.3 |
% |
|
(0.4 |
) pts |
|
GAAP net earnings ($B) |
|
$ |
0.7 |
|
|
$ |
0.8 |
|
|
(15.6 |
)% |
|
GAAP diluted net EPS |
|
$ |
0.46 |
|
|
$ |
0.51 |
|
|
(9.8 |
)% |
|
Non-GAAP operating margin |
|
8.1 |
% |
|
6.9 |
% |
|
1.2 |
pts |
|
Non-GAAP net earnings ($B) |
|
$ |
1.0 |
|
|
$ |
0.8 |
|
|
18.2 |
% |
|
Non-GAAP diluted net EPS |
|
$ |
0.65 |
|
|
$ |
0.52 |
|
|
25.0 |
% |
|
Net cash provided by operating
activities ($B) |
|
$ |
1.3 |
|
|
$ |
0.9 |
|
|
49.1 |
% |
|
Free cash flow ($B) |
|
$ |
1.1 |
|
|
$ |
0.7 |
|
|
66.6 |
% |
|
Notes to tableInformation about HP Inc.'s use of
non-GAAP financial information is provided under "Use of non-GAAP
financial information" below.
Net revenue and EPS resultsHP
Inc. and its subsidiaries (“HP”) announced fiscal 2020 first
quarter net revenue of $14.6 billion, down 0.6% (up 0.5% in
constant currency) from the prior-year period.
First quarter GAAP diluted net EPS was $0.46,
down from $0.51 in the prior-year period and above the previously
provided outlook of $0.39 to $0.42. First quarter non-GAAP diluted
net EPS was $0.65, up from $0.52 in the prior-year period and above
the previously provided outlook of $0.53 to $0.56. First quarter
non-GAAP net earnings and non-GAAP diluted net EPS exclude
after-tax adjustments of $278 million, or $0.19 per diluted share,
related to restructuring and other charges, acquisition-related
charges, amortization of intangible assets, non-operating
retirement-related (credits)/charges, and tax adjustments.
“Our Q1 results reflect a business that is
strong and getting stronger. Our non-GAAP EPS growth of 25% was
significantly above our guided range, driven by tremendous
execution against our strategic priorities,” said Enrique Lores,
President and CEO, HP Inc. “This is a team at the top of its game,
combining the industry’s best innovation with disciplined execution
and cost management to deliver for our shareholders. We have great
confidence in our plans and are raising our full-year earnings
outlook.”
Asset managementHP’s net cash
provided by operating activities in the first quarter of fiscal
2020 was $1.3 billion. Accounts receivable ended the quarter at
$4.9 billion, down 5-days quarter over quarter to 30 days.
Inventory ended the quarter at $4.9 billion, down 3-days quarter
over quarter to 38 days. Accounts payable ended the quarter at
$12.8 billion, down 9 days quarter over quarter to 98 days.
HP generated $1.1 billion of free cash flow in
the first quarter. Free cash flow includes net cash provided by
operating activities of $1.3 billion adjusted for net investment in
leases of $34 million and net investment in property, plant and
equipment of $198 million.
HP’s dividend payment of $0.1762 per share in
the first quarter resulted in cash usage of $0.3 billion. HP also
utilized $0.7 billion of cash during the quarter to repurchase
approximately 33.8 million shares of common stock in the open
market. As a result, HP returned 84% of its first quarter free cash
flow to shareholders. HP exited the quarter with $4.5 billion in
gross cash, which includes cash and cash equivalents and short-term
investments of $0.3 billion included in other current assets.
Fiscal 2020 First quarter segment
results• Personal Systems net
revenue was up 2% year over year (up 4% in constant currency) with
a 6.7% operating margin. Commercial net revenue increased 7% and
Consumer net revenue decreased 7%. Total units were up 4% with
Notebooks units up 2% and Desktops units up 7%.
• Printing net revenue was
down 7% year over year (down 6% in constant currency) with a 16.0%
operating margin. Total hardware units were down 10%. Commercial
hardware revenue was down 1% and Consumer hardware revenue was down
13%. Supplies net revenue was down 7% (down 7% in constant
currency).
OutlookFor the fiscal 2020
second quarter, HP estimates GAAP diluted net EPS to be in the
range of $0.46 to $0.50 and non-GAAP diluted net EPS to be in the
range of $0.49 to $0.53. Fiscal 2020 second quarter non-GAAP
diluted net EPS estimates exclude $0.03 per diluted share,
primarily related to restructuring and other charges,
acquisition-related charges, defined benefit plan settlement
charges, amortization of intangible assets, non-operating
retirement-related (credits)/charges, tax adjustments and the
related tax impact on these items.
For fiscal 2020, HP is updating its estimate of
GAAP diluted net EPS to be in the range of $2.03 to $2.13 and
revises its previous estimate of non-GAAP diluted net EPS to be in
the range of $2.33 to $2.43. Fiscal 2020 non-GAAP diluted net EPS
estimates exclude $0.30 per diluted share, primarily related to
restructuring and other charges, acquisition-related charges,
defined benefit plan settlement charges, amortization of intangible
assets, non-operating retirement-related (credits)/charges, tax
adjustments and the related tax impact on these items.
More information on HP's earnings, including
additional financial analysis and an earnings overview
presentation, is available on HP's Investor Relations website at
www.investor.hp.com.
HP's FY2020 Q1 earnings conference call is
accessible via an audio webcast at
www.hp.com/investor/2020Q1Webcast.
About HP Inc.HP Inc. (NYSE:
HPQ) creates technology that makes life better for everyone,
everywhere. Through our product and service portfolio of personal
systems, printers and 3D printing solutions, we engineer
experiences that amaze. More information about HP Inc. is available
at hp.com.
Use of non-GAAP financial
information
To supplement HP’s consolidated condensed
financial statements presented on a generally accepted accounting
principles (“GAAP”) basis, HP provides net revenue on a constant
currency basis, non-GAAP total operating expense, non-GAAP
operating profit, non-GAAP operating margin, non-GAAP tax rate,
non-GAAP net earnings, non-GAAP diluted net EPS, free cash flow,
gross cash and net cash (debt) financial measures. HP also provides
forecasts of non-GAAP diluted net EPS and free cash flow.
Reconciliations of these non-GAAP financial measures to the most
directly comparable GAAP financial measures are included in the
tables below or elsewhere in the materials accompanying this news
release. In addition, an explanation of the ways in which HP’s
management uses these non-GAAP measures to evaluate its business,
the substance behind HP’s decision to use these non-GAAP measures,
the material limitations associated with the use of these non-GAAP
measures, the manner in which HP’s management compensates for those
limitations, and the substantive reasons why HP’s management
believes that these non-GAAP measures provide useful information to
investors is included under “Use of non-GAAP financial measures”
after the tables below. This additional non-GAAP financial
information is not meant to be considered in isolation or as a
substitute for net revenue, operating expense, operating profit,
operating margin, tax rate, net earnings, diluted net EPS, cash
provided by operating activities or cash and cash equivalents
prepared in accordance with GAAP.
Forward-Looking Statements
This document contains forward-looking
statements that involve risks, uncertainties and assumptions. If
the risks or uncertainties ever materialize or the assumptions
prove incorrect, the results of HP Inc. and its consolidated
subsidiaries (“HP”) may differ materially from those expressed or
implied by such forward-looking statements and assumptions.
All statements other than statements of
historical fact are statements that could be deemed forward-looking
statements, including, but not limited to, any projections of net
revenue, margins, expenses, effective tax rates, net earnings, net
earnings per share, cash flows, benefit plan funding, deferred
taxes, share repurchases, foreign currency exchange rates or other
financial items; any projections of the amount, timing or impact of
cost savings or restructuring and other charges, planned structural
cost reductions and productivity initiatives; any statements of the
plans, strategies and objectives of management for future
operations, including, but not limited to, our business model and
transformation, our sustainability goals, our go-to-market
strategy, the execution of restructuring plans and any resulting
cost savings, net revenue or profitability improvements or other
financial impacts; any statements concerning the expected
development, performance, market share or competitive performance
relating to products or services; any statements regarding current
or future macroeconomic trends or events and the impact of those
trends and events on HP and its financial performance; any
statements regarding pending investigations, claims or disputes;
any statements of expectation or belief, including with respect to
the timing and expected benefits of acquisitions and other business
combination and investment transactions; and any statements of
assumptions underlying any of the foregoing.
Risks, uncertainties and assumptions include
factors relating to HP’s ability to execute on its strategic plan,
including the recently announced initiatives, business model
changes and transformation; execution of planned structural cost
reductions and productivity initiatives; potential developments
involving Xerox Holdings Corporation; HP’s ability to complete any
contemplated share repurchases, other capital return programs or
other strategic transactions; the need to address the many
challenges facing HP’s businesses; the competitive pressures faced
by HP’s businesses; risks associated with executing HP’s strategy
and business model changes and transformation; successfully
innovating, developing and executing HP’s go-to-market strategy,
including online, omnichannel and contractual sales, in an evolving
distribution and reseller landscape; the development and transition
of new products and services and the enhancement of existing
products and services to meet customer needs and respond to
emerging technological trends; successfully competing and
maintaining the value proposition of HP’s products, including
supplies; the need to manage third-party suppliers, manage HP’s
global, multi-tier distribution network, limit potential misuse of
pricing programs by HP’s channel partners, adapt to new or changing
marketplaces and effectively deliver HP’s services; challenges to
HP’s ability to accurately forecast inventories, demand and
pricing, which may be due to HP’s multi-tiered channel, sales of
HP’s products to unauthorized resellers or unauthorized resale of
HP’s products; integration and other risks associated with business
combination and investment transactions; the results of the
restructuring plans, including estimates and assumptions related to
the cost (including any possible disruption of HP’s business) and
the anticipated benefits of the restructuring plans; the protection
of HP’s intellectual property assets, including intellectual
property licensed from third parties; the hiring and retention of
key employees; the impact of macroeconomic and geopolitical trends
and events; risks associated with HP’s international operations;
the execution and performance of contracts by HP and its suppliers,
customers, clients and partners; disruptions in operations from
system security risks, data protection breaches, cyberattacks,
extreme weather conditions, medical epidemics or pandemics such as
the novel coronavirus, and other natural or manmade disasters or
catastrophic events; the impact of changes in tax laws, including
uncertainties related to the interpretation and application of the
Tax Cuts and Jobs Act of 2017 on HP’s tax obligations and effective
tax rate; the resolution of pending investigations, claims and
disputes; and other risks that are described in HP’s Annual Report
on Form 10-K for the fiscal year ended October 31, 2019 and HP’s
other filings with the Securities and Exchange Commission.
As in prior periods, the financial information
set forth in this document, including any tax-related items,
reflects estimates based on information available at this time.
While HP believes these estimates to be reasonable, these amounts
could differ materially from reported amounts in HP’s Quarterly
Reports on Form 10-Q for the fiscal quarters ended January 31,
2020, April 30, 2020 and July 31, 2020, Annual Report on Form 10-K
for the fiscal year ended October 31, 2020, and HP’s other filings
with the Securities and Exchange Commission. HP assumes no
obligation and does not intend to update these forward-looking
statements. HP’s Investor Relations website
at http://www.investor.hp.com contains a significant amount of
information about HP, including financial and other information for
investors. HP encourages investors to visit its website from time
to time, as information is updated and new information is
posted. The content of HP’s website is not incorporated by
reference into this document or in any other report or document HP
files with the SEC, and any references to HP’s website are intended
to be inactive textual references only.
|
HP INC. AND SUBSIDIARIES |
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS |
(Unaudited) |
(In millions, except per share amounts) |
|
|
Three months ended |
|
January 31, 2020 |
|
October 31, 2019 |
|
January 31, 2019 |
Net revenue |
$ |
14,618 |
|
|
$ |
15,407 |
|
|
$ |
14,710 |
|
Costs and expenses: |
|
|
|
|
|
Cost of revenue |
11,746 |
|
|
12,483 |
|
|
12,098 |
|
Research and development |
400 |
|
|
389 |
|
|
344 |
|
Selling, general and administrative |
1,290 |
|
|
1,405 |
|
|
1,248 |
|
Restructuring and other charges |
291 |
|
|
134 |
|
|
55 |
|
Acquisition-related charges |
— |
|
|
23 |
|
|
10 |
|
Amortization of intangible assets |
26 |
|
|
29 |
|
|
29 |
|
Total costs and expenses |
13,753 |
|
|
14,463 |
|
|
13,784 |
|
|
|
|
|
|
|
Earnings from operations |
865 |
|
|
944 |
|
|
926 |
|
Interest and other, net |
13 |
|
|
(452 |
) |
|
(26 |
) |
Earnings before taxes |
878 |
|
|
492 |
|
|
900 |
|
Provision for taxes |
(200 |
) |
|
(104 |
) |
|
(97 |
) |
Net earnings |
$ |
678 |
|
|
$ |
388 |
|
|
$ |
803 |
|
|
|
|
|
|
|
Net earnings per share: |
|
|
|
|
|
Basic |
$ |
0.47 |
|
|
$ |
0.26 |
|
|
$ |
0.52 |
|
Diluted |
$ |
0.46 |
|
|
$ |
0.26 |
|
|
$ |
0.51 |
|
|
|
|
|
|
|
Cash dividends declared per
share |
$ |
0.35 |
|
|
$ |
— |
|
|
$ |
0.32 |
|
|
|
|
|
|
|
Weighted-average shares used to
compute net earnings per share: |
|
|
|
|
|
Basic |
1,454 |
|
|
1,476 |
|
|
1,556 |
|
Diluted |
1,460 |
|
|
1,486 |
|
|
1,567 |
|
|
HP INC. AND
SUBSIDIARIES |
ADJUSTMENTS TO GAAP
NET EARNINGS, EARNINGS FROM OPERATIONS, |
OPERATING MARGIN AND
DILUTED NET EARNINGS PER SHARE |
(Unaudited) |
(In millions, except
per share amounts) |
|
|
|
Three months ended |
|
January 31, 2020 |
|
October 31, 2019 |
|
January 31, 2019 |
|
Amounts |
|
Diluted net earnings per share |
|
Amounts |
|
Diluted net earnings per share |
|
Amounts |
|
Diluted net earnings per share |
GAAP net earnings |
$ |
678 |
|
|
$ |
0.46 |
|
|
$ |
388 |
|
|
$ |
0.26 |
|
|
$ |
803 |
|
|
$ |
0.51 |
|
Non-GAAP adjustments: |
|
|
|
|
|
|
|
|
|
|
|
Restructuring and other charges |
291 |
|
|
0.20 |
|
|
134 |
|
|
0.09 |
|
|
55 |
|
|
0.04 |
|
Acquisition-related charges |
— |
|
|
— |
|
|
23 |
|
|
0.02 |
|
|
10 |
|
|
0.01 |
|
Amortization of intangible assets |
26 |
|
|
0.02 |
|
|
29 |
|
|
0.02 |
|
|
29 |
|
|
0.02 |
|
Non-operating retirement-related credits |
(57 |
) |
|
(0.04 |
) |
|
(25 |
) |
|
(0.02 |
) |
|
(12 |
) |
|
(0.01 |
) |
Tax adjustments(a) |
18 |
|
|
0.01 |
|
|
350 |
|
|
0.23 |
|
|
(76 |
) |
|
(0.05 |
) |
Non-GAAP net earnings |
$ |
956 |
|
|
$ |
0.65 |
|
|
$ |
899 |
|
|
$ |
0.60 |
|
|
$ |
809 |
|
|
$ |
0.52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP earnings from
operations |
$ |
865 |
|
|
|
|
$ |
944 |
|
|
|
|
$ |
926 |
|
|
|
Non-GAAP adjustments: |
|
|
|
|
|
|
|
|
|
|
|
Restructuring and other charges |
291 |
|
|
|
|
134 |
|
|
|
|
55 |
|
|
|
Acquisition-related charges |
— |
|
|
|
|
23 |
|
|
|
|
10 |
|
|
|
Amortization of intangible assets |
26 |
|
|
|
|
29 |
|
|
|
|
29 |
|
|
|
Non-GAAP earnings from
operations |
$ |
1,182 |
|
|
|
|
$ |
1,130 |
|
|
|
|
$ |
1,020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP operating margin |
6 |
% |
|
|
|
6 |
% |
|
|
|
6 |
% |
|
|
Non-GAAP adjustments |
2 |
% |
|
|
|
1 |
% |
|
|
|
1 |
% |
|
|
Non-GAAP operating margin |
8 |
% |
|
|
|
7 |
% |
|
|
|
7 |
% |
|
|
(a) Includes tax impact on non-GAAP
adjustments.
|
HP INC. AND SUBSIDIARIES |
CONSOLIDATED CONDENSED BALANCE SHEETS |
(Unaudited) |
(In millions) |
|
|
As
of |
|
January 31, 2020 |
|
October 31, 2019 |
ASSETS |
|
|
|
Current assets: |
|
|
|
Cash and cash equivalents |
$ |
4,205 |
|
|
$ |
4,537 |
|
Accounts receivable, net |
4,857 |
|
|
6,031 |
|
Inventory |
4,946 |
|
|
5,734 |
|
Other current assets |
3,469 |
|
|
3,875 |
|
Total current assets |
17,477 |
|
|
20,177 |
|
Property, plant and equipment,
net |
2,756 |
|
|
2,794 |
|
Goodwill |
6,387 |
|
|
6,372 |
|
Other non-current assets |
5,036 |
|
|
4,124 |
|
Total assets |
$ |
31,656 |
|
|
$ |
33,467 |
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' DEFICIT |
|
|
|
Current liabilities: |
|
|
|
Notes payable and short-term borrowings |
$ |
923 |
|
|
$ |
357 |
|
Accounts payable |
12,808 |
|
|
14,793 |
|
Other current liabilities |
10,136 |
|
|
10,143 |
|
Total current liabilities |
23,867 |
|
|
25,293 |
|
Long-term debt |
3,932 |
|
|
4,780 |
|
Other non-current
liabilities |
5,491 |
|
|
4,587 |
|
Stockholders' deficit |
(1,634 |
) |
|
(1,193 |
) |
Total liabilities and
stockholders' deficit |
$ |
31,656 |
|
|
$ |
33,467 |
|
|
HP INC. AND SUBSIDIARIES |
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS |
(Unaudited) |
(In millions) |
|
|
Three months
ended |
|
January 31, 2020 |
|
January 31, 2019 |
Cash flows from operating
activities: |
|
|
|
Net earnings |
$ |
678 |
|
|
$ |
803 |
|
Adjustments to reconcile net earnings to net cash provided by
operating activities: |
|
|
|
Depreciation and amortization |
198 |
|
|
168 |
|
Stock-based compensation expense |
109 |
|
|
107 |
|
Restructuring and other charges |
291 |
|
|
55 |
|
Deferred taxes on earnings |
117 |
|
|
103 |
|
Other, net |
54 |
|
|
(5 |
) |
Changes in operating assets and liabilities, net of
acquisitions: |
|
|
|
Accounts receivable |
1,167 |
|
|
211 |
|
Inventory |
761 |
|
|
191 |
|
Accounts payable |
(1,919 |
) |
|
(184 |
) |
Net investment in leases |
(34 |
) |
|
— |
|
Taxes on earnings |
(27 |
) |
|
11 |
|
Restructuring and other |
(109 |
) |
|
(46 |
) |
Other assets and liabilities |
(1 |
) |
|
(552 |
) |
Net cash provided by operating activities |
1,285 |
|
|
862 |
|
Cash flows from investing
activities: |
|
|
|
Investment in property, plant and equipment |
(198 |
) |
|
(189 |
) |
Purchases of available-for-sale securities and other
investments |
(311 |
) |
|
(69 |
) |
Maturities and sales of available-for-sale securities and other
investments |
11 |
|
|
344 |
|
Collateral posted for derivative instruments |
— |
|
|
(30 |
) |
Collateral returned for derivative instruments |
— |
|
|
30 |
|
Payment made in connection with business acquisitions, net of cash
acquired |
— |
|
|
(404 |
) |
Net cash used in investing activities |
(498 |
) |
|
(318 |
) |
Cash flows from financing
activities: |
|
|
|
Payment of short-term borrowings with original maturities less than
90 days, net |
— |
|
|
(855 |
) |
Proceed from short-term borrowings with original maturities greater
than 90 days |
2 |
|
|
— |
|
Proceeds from debt, net of issuance costs |
9 |
|
|
40 |
|
Payment of debt |
(67 |
) |
|
(476 |
) |
Stock-based award activities |
(116 |
) |
|
(83 |
) |
Repurchase of common stock |
(691 |
) |
|
(720 |
) |
Cash dividends paid |
(256 |
) |
|
(249 |
) |
Net cash used in financing activities |
(1,119 |
) |
|
(2,343 |
) |
Decrease in cash and cash
equivalents |
(332 |
) |
|
(1,799 |
) |
Cash and cash equivalents at
beginning of period |
4,537 |
|
|
5,166 |
|
Cash and cash equivalents at end
of period |
$ |
4,205 |
|
|
$ |
3,367 |
|
|
HP INC. AND SUBSIDIARIES |
SEGMENT/BUSINESS UNIT INFORMATION |
(Unaudited) |
(In millions) |
|
|
Three months
ended |
|
Change
(%) |
|
January 31, 2020 |
|
October 31, 2019 |
|
January 31, 2019 |
|
Q/Q |
|
Y/Y |
Net revenue: |
|
|
|
|
|
|
|
|
|
Notebooks |
$ |
5,974 |
|
|
$ |
6,280 |
|
|
$ |
5,919 |
|
|
(5 |
)% |
|
1 |
% |
Desktops |
2,923 |
|
|
3,138 |
|
|
2,857 |
|
|
(7 |
)% |
|
2 |
% |
Workstations |
594 |
|
|
649 |
|
|
562 |
|
|
(8 |
)% |
|
6 |
% |
Other |
401 |
|
|
359 |
|
|
319 |
|
|
12 |
% |
|
26 |
% |
Personal Systems |
9,892 |
|
|
10,426 |
|
|
9,657 |
|
|
(5 |
)% |
|
2 |
% |
Supplies |
3,041 |
|
|
3,159 |
|
|
3,267 |
|
|
(4 |
)% |
|
(7 |
)% |
Commercial Hardware |
1,076 |
|
|
1,183 |
|
|
1,090 |
|
|
(9 |
)% |
|
(1 |
)% |
Consumer Hardware |
607 |
|
|
640 |
|
|
699 |
|
|
(5 |
)% |
|
(13 |
)% |
Printing |
4,724 |
|
|
4,982 |
|
|
5,056 |
|
|
(5 |
)% |
|
(7 |
)% |
Corporate Investments(a) |
1 |
|
|
— |
|
|
1 |
|
|
NM |
|
NM |
Total segments net revenue |
14,617 |
|
|
15,408 |
|
|
14,714 |
|
|
(5 |
)% |
|
(1 |
)% |
Other(a) |
1 |
|
|
(1 |
) |
|
(4 |
) |
|
NM |
|
NM |
Total net revenue |
$ |
14,618 |
|
|
$ |
15,407 |
|
|
$ |
14,710 |
|
|
(5 |
)% |
|
(1 |
)% |
|
|
|
|
|
|
|
|
|
|
Earnings before taxes: |
|
|
|
|
|
|
|
|
|
Personal Systems |
$ |
662 |
|
|
$ |
556 |
|
|
$ |
410 |
|
|
|
|
|
Printing |
754 |
|
|
777 |
|
|
821 |
|
|
|
|
|
Corporate Investments |
(13 |
) |
|
(25 |
) |
|
(24 |
) |
|
|
|
|
Total segment earnings from operations |
1,403 |
|
|
1,308 |
|
|
1,207 |
|
|
|
|
|
Corporate and unallocated cost and other |
(112 |
) |
|
(114 |
) |
|
(80 |
) |
|
|
|
|
Stock-based compensation expense |
(109 |
) |
|
(64 |
) |
|
(107 |
) |
|
|
|
|
Restructuring and other charges |
(291 |
) |
|
(134 |
) |
|
(55 |
) |
|
|
|
|
Acquisition-related charges |
— |
|
|
(23 |
) |
|
(10 |
) |
|
|
|
|
Amortization of intangible assets |
(26 |
) |
|
(29 |
) |
|
(29 |
) |
|
|
|
|
Interest and other, net |
13 |
|
|
(452 |
) |
|
(26 |
) |
|
|
|
|
Total earnings before taxes |
$ |
878 |
|
|
$ |
492 |
|
|
$ |
900 |
|
|
|
|
|
(a) "NM" represents not meaningful.
|
HP INC. AND SUBSIDIARIES |
SEGMENT OPERATING MARGIN SUMMARY |
(Unaudited) |
|
|
Three months ended |
|
Change in Operating Margin (pts) |
|
January 31, 2020 |
|
October 31, 2019 |
|
January 31, 2019 |
|
Q/Q |
|
Y/Y |
Segment operating margin: |
|
|
|
|
|
|
|
|
|
Personal Systems |
6.7 |
% |
|
5.3 |
% |
|
4.2 |
% |
|
1.4 |
pts |
|
2.5 |
pts |
Printing |
16.0 |
% |
|
15.6 |
% |
|
16.2 |
% |
|
0.4 |
pts |
|
(0.2 |
) pts |
Corporate Investments(a) |
NM |
|
NM |
|
NM |
|
NM |
|
NM |
Total segments |
9.6 |
% |
|
8.5 |
% |
|
8.2 |
% |
|
1.1 |
pts |
|
1.4 |
pts |
(a) "NM" represents not
meaningful.
HP INC. AND SUBSIDIARIES |
CALCULATION OF DILUTED NET EARNINGS PER SHARE |
(Unaudited) |
(In millions, except per share amounts) |
|
|
Three months
ended |
|
January 31, 2020 |
|
October 31, 2019 |
|
January 31, 2019 |
Numerator: |
|
|
|
|
|
GAAP net earnings |
$ |
678 |
|
|
$ |
388 |
|
|
$ |
803 |
|
Non-GAAP net earnings |
$ |
956 |
|
|
$ |
899 |
|
|
$ |
809 |
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
Weighted-average shares used to compute basic net earnings per
share |
1,454 |
|
|
1,476 |
|
|
1,556 |
|
Dilutive effect of employee stock plans(a) |
6 |
|
|
10 |
|
|
11 |
|
Weighted-average shares used to compute diluted net earnings per
share |
1,460 |
|
|
1,486 |
|
|
1,567 |
|
|
|
|
|
|
|
GAAP diluted net earnings per
share |
$ |
0.46 |
|
|
$ |
0.26 |
|
|
$ |
0.51 |
|
Non-GAAP diluted net earnings per
share |
$ |
0.65 |
|
|
$ |
0.60 |
|
|
$ |
0.52 |
|
(a) Includes any dilutive effect of
restricted stock units, stock options and performance-based
awards.
Use of non-GAAP financial
measuresTo supplement HP’s consolidated condensed
financial statements presented on a GAAP basis, HP provides net
revenue on a constant currency basis, non-GAAP total operating
expense, non-GAAP operating profit, non-GAAP operating margin,
non-GAAP tax rate, non-GAAP net earnings, non-GAAP diluted net EPS,
free cash flow, gross cash and net cash (debt). HP also provides
forecasts of non-GAAP diluted net EPS and free cash flow.
These non-GAAP financial measures are not
computed in accordance with, or as an alternative to, GAAP in the
United States. Reconciliations of these non-GAAP financial measures
to the most directly comparable GAAP financial measures are
included in the tables above or elsewhere in the materials
accompanying this news release.
Use and economic substance of non-GAAP
financial measuresNet revenue on a constant currency basis
excludes the effect of foreign currency exchange fluctuations
calculated by translating current period revenues using monthly
average exchange rates from the comparative period and excluding
any hedging impact recognized in the current period. Non-GAAP
operating margin is defined to exclude the effects of any amounts
relating to restructuring and other charges, acquisition-related
charges, amortization of intangible assets. Non-GAAP net earnings
and non-GAAP diluted net EPS consist of net earnings or diluted net
EPS excluding those same charges, defined benefit plan settlement
charges, non-operating retirement related (credits)/charges, tax
adjustments and the amount of additional taxes or tax benefits
associated with each non-GAAP item. HP’s management uses these
non-GAAP financial measures for purposes of evaluating HP’s
historical and prospective financial performance, as well as HP’s
performance relative to its competitors. HP’s management also uses
these non-GAAP measures to further its own understanding of HP’s
segment operating performance. HP believes that excluding the items
mentioned above for these non-GAAP financial measures allows HP’s
management to better understand HP’s consolidated financial
performance in relation to the operating results of HP’s segments,
as HP’s management does not believe that the excluded items are
reflective of ongoing operating results. More specifically, HP’s
management excludes each of those items mentioned above for the
following reasons:
- Restructuring and other charges are (i) costs associated with a
formal restructuring plan and are primarily related to employee
termination and early retirement costs and related benefits, costs
of real estate consolidation and other non-labor charges; and (ii)
other charges, which include non-recurring costs that are distinct
from ongoing operational costs. HP excludes these restructuring and
other charges (and any reversals of charges recorded in prior
periods) for purposes of calculating these non-GAAP measures
because HP believes that these costs do not reflect expected future
operating expenses and do not contribute to a meaningful evaluation
of HP's current operating performance or comparisons to HP's
operating performance in other periods.
- HP incurs cost related to its acquisitions, which it would not
have otherwise incurred as part of its operations. The charges are
direct expenses such as third-party professional and legal fees,
and integration-related costs, as well as non-cash adjustments to
the fair value of certain acquired assets such as inventory. These
charges related to acquisitions are inconsistent in amount and
frequency and are significantly impacted by the timing and nature
of HP's acquisitions. HP believes that eliminating such expenses
for purposes of calculating these non-GAAP measures facilitates a
more meaningful evaluation of HP's current operating performance
and comparisons to HP's past operating performance in other
periods.
- HP incurs charges relating to the amortization of intangible
assets. Those charges are included in HP’s GAAP earnings, operating
margin, net earnings and diluted net EPS. Such charges are
significantly impacted by the timing and magnitude of HP’s
acquisitions and any related impairment charges. Consequently, HP
excludes these charges for purposes of calculating these non-GAAP
measures to facilitate a more meaningful evaluation of HP’s current
operating performance and comparisons to HP’s operating performance
in other periods.
- Non-operating retirement-related (credits)/charges includes
certain market-related factors such as interest cost, expected
return on plan assets, amortized actuarial gains or losses, and
impacts from other market-related factors associated with HP’s
defined benefit pension and post-retirement benefit plans. The
market-driven retirement-related adjustments are primarily due to
the changes in pension plan assets and liabilities which are tied
to financial market performance and HP considers these adjustments
to be outside the operational performance of the business.
Non-operating retirement-related (credits)/charges also include
certain plan curtailments, settlements and special termination
benefits related to HP’s defined benefit pension and
post-retirement benefit plans. HP believes that eliminating such
adjustments for purposes of calculating non-GAAP measures
facilitates a more meaningful evaluation of HP's current operating
performance and comparisons to HP's operating performance in other
periods.
- HP incurred defined benefit plan settlement charges relating to
the U.S. HP pension plan. The charges are associated with the net
settlement and remeasurement resulting from voluntary lump sum
payments offered to certain terminated vested participants. HP
excludes these charges for the purposes of calculating these
non-GAAP measures to facilitate a more meaningful evaluation of
HP’s current operating performance and comparisons to HP’s
operating performance in other periods.
- Tax adjustments include U.S. tax reform adjustment and net tax
indemnification amounts. º HP recorded U.S. tax reform
adjustments as one-time charges relating to the enactment of the
Tax Cuts and Jobs Act of 2017 and has completed the accounting for
the tax effects of the Tax Cuts and Jobs Act within the one year
measurement period. Additional guidance is periodically issued by
regulators and new positions taken or elections made by HP impact
the income tax expense and effective tax rate in the period in
which the adjustments are made. º HP also recorded
other tax adjustment including tax benefits and expenses related to
the realizability of certain deferred tax assets, various tax rate
and regulatory changes and tax settlements across various
jurisdictions.
HP excludes these adjustments for the purposes
of calculating these non-GAAP measures to facilitate a more
meaningful evaluation of HP's current operating performance and
comparisons to HP's operating performance in other periods.
Free cash flow is a non-GAAP measure that is
defined as cash flow from operations adjusted for net investment in
leases and net investments in property, plant, and equipment. Gross
cash is a non-GAAP measure that is defined as cash and cash
equivalents plus short-term investments and certain long-term
investments that may be liquidated within 90 days pursuant to the
terms of existing put options or similar rights. HP’s management
uses free cash flow and gross cash for the purpose of determining
the amount of cash available for investment in HP’s businesses,
repurchasing stock and other purposes. HP’s management also uses
free cash flow and gross cash to evaluate HP’s historical and
prospective liquidity. Because gross cash includes liquid assets
that are not included in cash and cash equivalents, HP believes
that gross cash provides a helpful assessment of HP’s liquidity.
Because free cash flow includes net cash provided by operating
activities adjusted for net investment in leases and net
investments in property, plant and equipment, HP believes that free
cash flow provides a more accurate and complete assessment of HP’s
liquidity and capital resources. Net cash (debt) is defined as
gross cash less gross debt after adjusting the effect of
unamortized premium/discount on debt issuance, debt issuance costs
and unrealized gains/losses on fair value hedges and interest rate
swaps.
Material limitations associated with use
of non-GAAP financial measuresThese non-GAAP financial
measures may have limitations as analytical tools, and these
measures should not be considered in isolation or as a substitute
for analysis of HP’s results as reported under GAAP. Some of the
limitations in relying on these non-GAAP financial measures
are:
- Items such as amortization of intangible assets, though not
directly affecting HP’s cash position, represent the loss in value
of intangible assets over time. The expense associated with this
change in value is not included in non-GAAP operating margin,
non-GAAP net earnings and non-GAAP diluted net EPS, and therefore
does not reflect the full economic effect of the change in value of
those intangible assets.
- Items such as restructuring and other charges,
acquisition-related charges, non-operating retirement-related
(credits)/charges, defined benefit plan settlement charges, and tax
adjustments that are excluded from non-GAAP operating margin,
non-GAAP net earnings and non-GAAP diluted net EPS can have a
material impact on the equivalent GAAP earnings measure and cash
flows.
- HP may not be able to immediately liquidate the short-term and
certain long-term investments included in gross cash, which may
limit the usefulness of gross cash as a liquidity measure.
Other companies may calculate the non-GAAP
financial measures differently than HP, limiting the usefulness of
those measures for comparative purposes.
Compensation for limitations associated
with use of non-GAAP financial measuresHP compensates for
the limitations on its use of non-GAAP financial measures by
relying primarily on its GAAP results and using non-GAAP financial
measures only supplementally. HP also provides robust and detailed
reconciliations of each non-GAAP financial measure to its most
directly comparable GAAP measure within this news release and in
other written materials that include these non-GAAP financial
measures, and HP encourages investors to review those
reconciliations carefully.
Usefulness of non-GAAP financial
measures to investorsHP believes that providing net
revenue on a constant currency basis, non-GAAP total operating
expense, non-GAAP operating profit, non-GAAP operating margin,
non-GAAP tax rate, non-GAAP net earnings, non-GAAP diluted net EPS,
free cash flow, gross cash and net cash (debt) to investors in
addition to the related GAAP financial measures provides investors
with greater transparency to the information used by HP’s
management in its financial and operational decision making and
allows investors to see HP’s results “through the eyes” of
management. HP further believes that providing this information
better enables HP’s investors to understand HP’s operating
performance and financial condition and to evaluate the efficacy of
the methodology and information used by HP’s management to evaluate
and measure such performance and financial condition. Disclosure of
these non-GAAP financial measures also facilitates comparisons of
HP’s operating performance with the performance of other companies
in HP’s industry that supplement their GAAP results with non-GAAP
financial measures that may be calculated in a similar manner.
Editorial contacts HP Inc. Media
RelationsMediaRelations@hp.com HP Inc. Investor
RelationsInvestorRelations@hp.com
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