Today at HP’s 2019 Securities Analyst Meeting (“SAM”), the company
provided details on its strategy and opportunities for long-term
growth, along with its financial outlook for fiscal 2020.
“We are taking bold and decisive actions as we embark on our
next chapter,” said Enrique Lores, incoming President and Chief
Executive Officer, HP Inc. “We see significant opportunities to
create shareholder value and we will accomplish this by advancing
our leadership, disrupting industries and aggressively transforming
the way we work. We will become an even more customer-focused and
digitally enabled company, that will lead with innovation and
execute with purpose.”
"I’m proud of the progress we have made across our business with
cutting edge innovation, disciplined execution and a purpose driven
culture,“ said Dion Weisler, President and Chief Executive Officer,
HP Inc. “I have no doubt our team will keep raising the bar under
Enrique’s leadership.”
Fiscal 2020 outlook
For fiscal 2020, the company estimates GAAP diluted net EPS to
be in the range of $1.98 to $2.10 and estimates non-GAAP diluted
net EPS to be in the range of $2.22 to $2.32. Fiscal 2020 non-GAAP
diluted net EPS estimates exclude $0.22 to $0.24 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.
Based on the current environment, HP anticipates generating free
cash flow of at least $3.0 billion for fiscal 2020.
In fiscal 2020, the company indicated that it expects to return
at least 75% of free cash flow, with a 10% increase in the planned
quarterly dividend amount, and the balance returned to shareholders
through share repurchases.
“In FY19, we continue to deliver on our financial commitments,
with consistent company-level performance, non-GAAP EPS, free cash
flow and return of capital,” said Steve Fieler, Chief Financial
Officer. “I’m confident in our ability to execute with the multiple
levers we have to drive profit and create value in our
businesses.”
Fiscal year 2020 restructuring plan
Today, HP Inc. announced a fiscal year 2020 restructuring plan
to simplify its operating model and become a more digitally enabled
company. The company expects to reduce gross global headcount by
approximately 7,000-9,000 employees through a combination of
employee exits and voluntary early retirement. The company
estimates that it will incur total labor and non-labor costs of
approximately $1.0 billion in connection with the restructuring and
other charges, with approximately $100 million in fiscal Q4 of
2019, $500 million in fiscal 2020 and the rest split between fiscal
2021 and 2022. These actions are expected to be completed in fiscal
2022. The company estimates that these actions will result in
annualized gross run rate savings of about $1.0 billion by the end
of fiscal 2022.
Additional share repurchase authorization
On September 30th, 2019, the Board of Directors (the "Board") of
HP authorized an additional $5.0 billion for future repurchases of
its outstanding shares of common stock. HP intends to use the
additional authorization to repurchase its shares from time to time
to offset the dilution created by shares issued under employee
stock plans and to repurchase shares opportunistically. As of
September 30, 2019, HP had approximately $1.7 billion of share
repurchase authorization remaining, prior to the Board’s approval
of the increase.
Webcast details
A webcast of today’s event, along with management presentations
and other materials, is available
at www.hp.com/investor/SAM2019. This news release contains
only a summary of some of the information being presented at
today’s event and should be read in conjunction with the management
presentations and other materials made available on that
website.
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 www.hp.com.
Forward-looking statements
This news release 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 and its consolidated subsidiaries 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 EPS, 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; any statements of the plans,
strategies and objectives of management for future operations,
including, but not limited to, our sustainability goals, our
go-to-market strategy, the execution of restructuring plans and any
resulting cost savings, net revenue or profitability improvements;
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 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; successfully innovating,
developing and executing HP’s go-to-market strategy, including
online, omnichannel and contractual sales, in an evolving
distribution and reseller landscape; successfully competing
and maintaining the value proposition of HP’s products, including
supplies; the impact of macroeconomic and geopolitical trends and
events; 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; the protection of HP’s intellectual property assets,
including intellectual property licensed from third parties; risks
associated with HP’s international operations; 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; the execution and performance of
contracts by HP and its suppliers, customers, clients and partners;
the hiring and retention of key employees; 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 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, 2018, and HP’s other filings with the Securities
and Exchange Commission.
As in prior periods, the financial information set forth in this
release, 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 Annual Reports on Form 10-K for the
fiscal years ended October 31, 2019 and 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://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.
Use of non-GAAP financial information
To supplement HP’s financial information 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 each of these non-GAAP
financial measures to the most directly comparable GAAP financial
measures are included in the slides presented at the 2019 SAM.
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 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.
Use and economic substance of non-GAAP financial
measures
Net 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, defined benefit plan
settlement charges, amortization of intangible assets and
non-operating retirement-related (credits)/ charges. Non-GAAP net
earnings and non-GAAP diluted net EPS consist of net earnings or
diluted net EPS excluding those same 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 historical 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 incurs 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 could include tax benefits and expenses
primarily related to the realizability of certain deferred tax
assets.
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 less the net of investments in and proceeds
from sale of property, plant and equipment, adjusted for the impact
of changes in leasing receivables. 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 the
effect of investments in and proceeds from the sale of property,
plant and equipment, adjusted for the impact of changes in leasing
receivables that are not reflected in net cash provided by
operating activities, 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 measures
These 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
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 measures
HP 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 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
investors
HP 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
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