HP's fiscal Q2 net income increases 18% to US$1.27B on nearly flat revenues of US$27.3B; company saw reduced expenses, increased earnings from operations

PALO ALTO, California , May 22, 2014 (press release) –

  • Second quarter non-GAAP diluted net earnings per share of $0.88, up 1% from the prior-year period, versus the previously provided outlook of $0.85 to $0.89 per share
  • Second quarter GAAP diluted net earnings per share of $0.66, up 20% from the prior-year period, versus the previously provided outlook of $0.62 to $0.66 per share
  • Second quarter net revenue of $27.3 billion, down 1% from the prior-year period and flat on a constant currency basis
  • Second quarter cash flow from operations of $3.0 billion
  • Returned $1.1 billion to shareholders in the form of dividends and share repurchases in the second quarter
  • Improved operating company net cash by $1.0 billion, the ninth consecutive quarterly improvement of approximately $1 billion or more

Information about HP's use of non-GAAP financial information is provided under "Use of non-GAAP financial information" below.

HP today announced financial results for its fiscal 2014 second quarter ended April 30, 2014.

Second quarter GAAP diluted net earnings per share (EPS) was $0.66, up from $0.55 in the prior-year period and within its previously provided outlook of $0.62 to $0.66. Second quarter non-GAAP diluted net EPS was $0.88, up from $0.87 in the prior-year period and within its previously provided outlook of $0.85 to $0.89. Second quarter non-GAAP net earnings and non-GAAP diluted net EPS exclude after-tax costs of $418 million and $0.22 per diluted share, respectively, related to the amortization of intangible assets, restructuring charges and acquisition-related charges.

Second quarter net revenue of $27.3 billion was down 1% from the prior-year period and flat on a constant currency basis.

"With the first half of our fiscal year completed, I'm pleased to report that HP's turnaround remains on track," said Meg Whitman, president and chief executive officer, HP. "With each passing quarter, HP is improving its systems, structures and core go-to-market capabilities. We're gradually shaping HP into a more nimble, lower-cost, more customer- and partner-centric company that can successfully compete across a rapidly changing IT landscape."

In May 2012, HP adopted a multi-year restructuring plan designed to simplify business processes, accelerate innovation, lower costs and deliver better results. HP previously estimated that 34,000 positions would be eliminated in connection with the plan. As HP continues to reengineer the workforce to be more competitive and meet its objectives, the previously estimated number of eliminated positions will increase by between 11,000 to 16,000.

Outlook
For the fiscal 2014 third quarter, HP estimates non-GAAP diluted net EPS to be in the range of $0.86 to $0.90 and GAAP diluted net EPS to be in the range of $0.59 to $0.63. Fiscal 2014 third quarter non-GAAP diluted net EPS estimates exclude after-tax costs of approximately $0.27 per share, related primarily to the amortization of intangible assets and restructuring charges.

For fiscal 2014, HP estimates non-GAAP diluted net EPS to be in the range of $3.63 to $3.75 and GAAP diluted net EPS to be in the range of $2.68 to $2.80. Fiscal 2014 non-GAAP diluted net EPS estimates exclude after-tax costs of approximately $0.95 per share, related primarily to the amortization of intangible assets and restructuring charges.

Asset management
HP generated $3.0 billion in cash flow from operations in the second quarter, down 16% from the prior-year period. Inventory ended the quarter at $5.8 billion, down 1 day year over year to 25 days. Accounts receivable ended the quarter at $14.3 billion, down 1 day year over year at 47 days. Accounts payable ended the quarter at $13.5 billion, up 6 days year over year to 59 days. HP's dividend payment of $0.1452 per share in the second quarter resulted in cash usage of $298 million. HP also utilized $831 million of cash during the quarter to repurchase approximately 26.7 million shares of common stock in the open market. HP exited the quarter with $15.4 billion in gross cash.

Fiscal 2014 second quarter segment results
  • Personal Systems revenue was up 7% year over year with a 3.5% operating margin. Commercial revenue increased 12% and Consumer revenue declined 2%. Total units were up 10% with Desktops units up 6% and Notebooks units up 6%.
  • Printing revenue was down 4% year over year with a 19.5% operating margin. Total hardware units were up 1% with Commercial hardware units up 3% and Consumer hardware units flat. Supplies revenue was down 6%.
  • Enterprise Group revenue was down 2% year over year with a 14.4% operating margin. Industry Standard Servers revenue was up 1%, Storage revenue was down 6%, Business Critical Systems revenue was down 14%, Networking revenue was up 6% and Technology Services revenue was down 5%.
  • Enterprise Services revenue was down 7% year over year with a 2.5% operating margin. Application and Business Services revenue was down 8%, and Infrastructure Technology Outsourcing revenue declined 7%.
  • Software revenue was flat year over year with a 19.2% operating margin. License revenue was up 8%, support revenue was down 4%, professional services revenue was up 1% and software-as-a-service (SaaS) revenue was up 6%.
  • HP Financial Services revenue was down 2% year over year with a 2% decrease in net portfolio assets and a 12% increase in financing volume. The business delivered an operating margin of 11.4%.
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.hp.com/investor/home.

HP's Q2 FY14 earnings conference call is accessible via an audio webcast at www.hp.com/investor/2014Q2webcast.

About HP
HP creates new possibilities for technology to have a meaningful impact on people, businesses, governments and society. With the broadest technology portfolio spanning printing, personal systems, software, services and IT infrastructure, HP delivers solutions for customers' most complex challenges in every region of the world. More information about HP is available at http://www.hp.com.

To view charts and tables associated with this release, visit http://h30261.www3.hp.com/phoenix.zhtml?c=71087&p=irol-newsArticle&ID=1933777&highlight=

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 revenue on a constant currency basis, non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings, non-GAAP diluted net earnings per share, gross cash, free cash flow, net capital expenditures, net debt, net cash, operating company net debt and operating company net cash. HP also provides forecasts of non-GAAP diluted net earnings per share. A reconciliation of the adjustments to GAAP results for this quarter and prior periods is 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 management'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 revenue, operating profit, operating margin, net earnings, diluted net earnings per share, cash and cash equivalents, cash flow from operations, capital expenditures, or total company debt prepared in accordance with GAAP.

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