HP (NYSE:HPQ) –
News highlights:
- Estimates GAAP diluted net earnings per share from continuing
operations for fiscal 2018 of $1.69 to $1.79
- Estimates non-GAAP diluted net earnings per share for fiscal
2018 of $1.74 to $1.84
- Estimates fiscal 2018 free cash flow of at least $3.0
billion
- Expects to return 50%-75% of fiscal 2018 free cash flow to
shareholders through dividends and share repurchases
Today at HP Inc.’s 2017 Securities Analyst Meeting (SAM), the
company provided details on its strategy and opportunities for
long-term growth, coupled with its financial outlook for fiscal
2018.
“Fiscal 2017 has been a tremendous year for HP and we are just
getting started. We’ve delivered reliable earnings and cash flow,
taken profitable share, driven productivity, stabilized our core
businesses, and importantly, we grew,” said Dion Weisler, President
and Chief Executive Officer, HP Inc. “We are well positioned
to lead in the core, accelerate growth opportunities, like A3 and
Graphics in Printing and commercial transformation in Personal
Systems, and capture the future with 3D Printing in plastics and
now metals.”
Fiscal 2018 outlook
For fiscal 2018, the company estimates GAAP diluted net earnings
per share from continuing operations to be in the range of $1.69 to
$1.79 and estimates non-GAAP diluted net earnings per share to be
in the range of $1.74 to $1.84. Fiscal 2018 non-GAAP diluted net
earnings per share estimates exclude after-tax costs primarily
related to items such as restructuring and other charges,
acquisition-related charges, defined benefit plan settlement
charges, amortization of intangible assets, non-operating
retirement-related credits/(charges), net tax indemnifications, net
valuation allowances and discontinued operations. Based on
the current environment, HP anticipates generating free cash flow
of at least $3.0 billion for fiscal 2018.
HP expects to return 50%-75% of annual free cash flow to
shareholders. In fiscal 2018, the company indicated that it
expects to be towards the higher end of that range, with a 5%
increase in the planned quarterly dividend amount, and the balance
returned to shareholders through share repurchases.
“HP has been building strong business momentum, demonstrating
our strategy is working,” said Cathie Lesjak, Chief Financial
Officer. “We expect to continue our momentum in fiscal 2018.
We have shown that we can deliver in the short-term, while
also positioning ourselves for long-term success.”
Webcast details
A webcast of today’s event, along with management presentations
and other materials, is available
at www.hp.com/investor/SAM2017. 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. creates technology that makes life better for everyone,
everywhere. Through our portfolio of printers, PCs, mobile devices,
solutions, and services, we engineer experiences that amaze. More
information about HP Inc. (NYSE:HPQ) is available
at http://www.hp.com.
Forward-looking statements
Today’s presentations contain 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; any statements of the
plans, strategies and objectives of management for future
operations, including 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 combinations 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; the impact of macroeconomic and geopolitical trends
and events; the need to manage third-party suppliers and the
distribution of HP’s products and the delivery of HP’s services
effectively; 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 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, 2016 and HP’s other filings with the Securities
and Exchange Commission.
As in prior periods, the financial information set forth in
today’s presentations, 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 ending October 31, 2017 and October
31, 2018. HP assumes no obligation and does not intend to update
these forward-looking statements. HP’s Investor Relations website
at http://www.hp.com/investor/home 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 consolidated 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 margin, non-GAAP tax rate,
non-GAAP net earnings, non-GAAP diluted net earnings per share,
free cash flow, gross cash and net cash (debt) financial measures.
HP also provides forecasts of non-GAAP diluted net earnings per
share. These non-GAAP financial measures are not computed in
accordance with, or as an alternative to, generally accepted
accounting principles in the United States. Reconciliations of
these non-GAAP financial measures to the most directly comparable
GAAP financial measures are included in the slides presented at the
2017 Securities Analyst Meeting. 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 profit from continuing operations, operating margin from
continuing operations, net earnings from continuing operations,
diluted net earnings per share from continuing operations 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 assumes no change in
the foreign currency exchange rate from the prior-year 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 from continuing
operations or diluted net EPS from continuing operations excluding
those same charges and net tax indemnifications. In addition,
non-GAAP net earnings and non-GAAP diluted net EPS are adjusted by
the amount of additional taxes or tax benefits associated with each
non-GAAP item and other tax benefits or charges as a consequence of
the separation of Hewlett Packard Enterprise Company from HP Inc.
(the “Separation”). 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 costs and 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. 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.
- HP incurs charges relating to the amortization of intangible
assets. Those charges are included in HP’s GAAP earnings from
continuing operations, operating margin from continuing operations,
net earnings from continuing operations and diluted net EPS from
continuing operations. 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 provides better transparency into the segment
operating results.
- As part of the Separation, HP evaluates all tax uncertain
positions to determine the indemnification amounts under the Tax
Matters Agreement with Hewlett Packard Enterprise Company and
records the adjustments as net tax indemnifications amounts for the
quarter. 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.
- 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.
- As part of the Separation, HP recorded several
Separation-related items including: the reversal of a previously
recorded valuation allowance, the write-off of specific deferred
taxes providing no continued benefit to HP and the entry of certain
Separation-related deferred tax expense. HP believes that
eliminating these amounts for purposes of calculating non-GAAP net
earnings facilitates a more meaningful comparison of HP’s net
earnings to other periods, as HP’s management does not believe that
the excluded items are reflective of ongoing operating
results.
Free cash flow is a non-GAAP measure that is defined as cash
flow from operations less net capital expenditures. Net capital
expenditures is defined as investments in property, plant and
equipment less proceeds from the sale of 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 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
gross cash to evaluate HP’s historical and prospective liquidity.
Because gross cash includes liquid assets that are not included in
GAAP cash and cash equivalents, HP believes that gross cash
provides a helpful assessment of HP’s liquidity. 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, net tax
indemnifications and net valuation allowance, and separation taxes
and 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
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
investors
HP believes that providing net revenue on a constant currency
basis, non-GAAP operating margin, non-GAAP tax rate, non-GAAP total
operating expense, 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.
© 2017 HP Development Company, L.P. The information contained
herein is subject to change without notice. The only warranties for
HP Inc. products and services are set forth in the express warranty
statements accompanying such products and services. Nothing herein
should be construed as constituting an additional warranty. HP Inc.
shall not be liable for technical or editorial errors or omissions
contained herein.
Contacts
Media Relations, HP
mediarelations@hp.com
Investor Relations, HP
investorrelations@hp.com
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