HP recently announced financial results for its fourth fiscal quarter ended 31 October 2009, with net revenue of $30.8 billion, down 8% from a year earlier and down 5% when adjusted for the effects of currency.
In the fourth quarter, GAAP diluted net earnings per share (EPS) were $0.99, compared with $0.84 in the prior-year period. Non-GAAP EPS were $1.14, compared with $1.03 in the prior-year period. Non-GAAP financial information excludes after-tax costs related primarily to the amortisation of purchased intangibles, restructuring charges and acquisition-related charges of approximately $0.15 per share and $0.19 per share in the fourth fiscal quarter of 2009 and 2008, respectively.
“HP's solid performance in services drove record profit, and the accelerated pace in signings creates strong momentum going into 2010,” said Gois Fouch'e, Acting Managing Director and chief financial officer HP South Africa. “Our operational execution and improving cost structure generated strong quarterly and year-end results. We expect to outperform the market due to our significant scale, broad portfolio and market-leading position.”
Information about HP's use of non-GAAP financial information is provided under “Use of non-GAAP financial information” below.
Full year fiscal 2009
Net revenue for the full fiscal year 2009 was $114.6 billion, down 3% compared with the prior-year period or up 1% when adjusted for the effects of currency. GAAP operating profit was $10.1 billion and GAAP diluted EPS was $3.14, down from $3.25 in the prior year. Non-GAAP operating profit was $12.6 billion, and non-GAAP diluted EPS was $3.85, up from $3.62 in the prior-year period. Non-GAAP financial information excludes $1.7 billion of adjustments on an after-tax basis, or $0.71 per diluted share, related to the amortisation of purchased intangible assets, restructuring charges, acquisition-related charges and in-process research and development charges.
“Relentless focus on driving efficiencies across the business has given HP a significant competitive advantage,” said Fouch'e. “Our skill in executing strong acquisitions and integrating them seamlessly improves the value of our portfolio, strengthens the business and contributes to our ability to expand in key growth markets in the future.”
Fourth quarter revenue declined 3% in the Americas to $13.6 billion. Revenue was down 17% in Europe, the Middle East and Africa and 1% in Asia Pacific to $11.7 billion and $5.4 billion, respectively. When adjusted for the effects of currency, revenue was down 1% in the Americas while declining 10% in Europe, the Middle East and Africa and 1% in Asia Pacific versus the prior-year period.
Revenue from outside of the United States in the fourth quarter accounted for 64% of total revenue, with revenue in the BRIC countries (Brazil, Russia, India and China) declining 4% over the prior-year period while accounting for 10% of total HP revenue. China revenue increased more than 20% from the prior year.
Services
Services revenue increased 8% to $8.9 billion. Infrastructure Technology Outsourcing reported revenue of $4.1 billion while Technology Services, Application Services and Business Process Outsourcing posted revenue of $2.5 billion, $1.5 billion and $778 million, respectively. Operating profit was $1.4 billion, or 16.2% of revenue, up from $945 million, or 11.4% of revenue, in the prior-year period. With the EDS integration tracking ahead of plan, services ended the fiscal year with strong momentum in signings and a significant number of new logo wins.
Enterprise Storage and Servers
Enterprise Storage and Servers (ESS) reported total revenue of $4.2 billion, down 17%. Storage revenue declined 20% with the midrange EVA product line down 23%.
Industry Standard Server revenue declined 10% and Business Critical Systems revenue declined 33%, while ESS blade revenue was down 8%. Operating profit was $481 million, or 11.4% of revenue, down from $705 million, or 13.9% of revenue, in the prior-year period.
HP Software
HP Software revenue declined 16% to $967 million. Business Technology Optimisation revenue declined 16% and other software revenue declined 15% over the prior-year period. Operating profit was $234 million, or 24.2% of revenue, up from $211 million, or 18.4% of revenue, in the prior-year period.
Personal Systems Group
Personal Systems Group (PSG) posted an increase of unit shipments of 8% and maintained the leading market share position in PCs worldwide. PSG revenue declined 12% to $9.9 billion. Notebook revenue for the quarter was down 8%, while Desktop revenue declined 16%. Commercial client revenue was down 15%, while Consumer client revenue decreased 8%. Operating profit was $460 million, or 4.7% of revenue, down from $616 million, or 5.5% of revenue, in the prior-year period.
Imaging and Printing Group
Imaging and Printing Group (IPG) revenue declined 15% to $6.5 billion. Supplies revenue was down 8% while Commercial hardware revenue and Consumer hardware revenue declined 32% and 17%, respectively. Printer unit shipments decreased 20%, with Commercial printer hardware units down 38% and Consumer printer hardware units down 14%. Operating profit was $1.2 billion, or 18.1% of revenue, versus $1.2 billion, or 15.3% of revenue, in the prior-year period.
HP Financial Services
HP Financial Services (HPFS) reported revenue of $726 million, up 5% from the prior-year period. Financing volume increased 6%, and net portfolio assets increased 21%. Operating margin was 9.1% of revenue, up from 7.4% in the prior-year period.
Asset management
HP generated $3.4 billion in cash flow from operations for the fourth quarter. Inventory ended the quarter at $6.1 billion, down four days. Accounts receivable of $16.5 billion was up three days. Accounts payable ended the quarter at $14.8 billion, up five days. HP's dividend payment of $0.08 per share in the fourth quarter resulted in cash usage of $190 million.
HP utilised $2.1 billion of cash during the fourth quarter to repurchase approximately 46 million shares of common stock in the open market. HP exited the quarter with $13.4 billion in gross cash.
Outlook
For the first fiscal quarter of 2010, HP estimates revenue of approximately $29.6 billion to $29.9 billion, GAAP diluted EPS in the range of $0.90 to $0.92, and non-GAAP diluted EPS in the range of $1.03 to $1.05. First fiscal quarter 2010 non-GAAP diluted EPS estimates exclude after-tax costs of approximately $0.13 per share, related primarily to the amortisation of purchased intangibles, restructuring charges and acquisition-related charges.
HP estimates full fiscal year 2010 revenue will be approximately $118 billion to $119 billion, up from its previous estimate of $117 billion to $118 billion. Full fiscal year 2010 GAAP diluted EPS is expected to be in the range of $3.65 to $3.75, up from its previous estimate of $3.60 to $3.70, and non-GAAP diluted EPS is expected to be in the range of $4.25 to $4.35, up from its previous estimate of $4.20 to $4.30.
Adoption of new accounting pronouncements
In the fourth quarter, HP early adopted two recently released accounting standards related to revenue recognition, Accounting Standards Update (“ASU”) number 2009-13 and ASU number 2009-14 for transactions originating or materially modified in fiscal 2009.
These accounting changes generally result in earlier revenue recognition than under previous guidance for certain deliverables in multiple-element arrangements. HP adopted these standards as of the beginning of fiscal 2009; therefore the previously reported quarterly results have been restated to reflect the impact of adoption.
More information on HP's quarterly earnings, including additional financial analysis and an earnings overview presentation, is available on HP's Investor Relations Web site at www.hp.com/investor/home.
HP's Q4 FY09 earnings conference call is accessible via an audio Webcast at www.hp.com/investor/q42009webcast.
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Use of non-GAAP financial information
To supplement HP's consolidated condensed financial statements presented on a GAAP basis, HP provides non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings, non-GAAP diluted earnings per share and gross cash. HP also provides forecasts of non-GAAP diluted earnings per share. A reconciliation of the adjustments to GAAP results for this quarter and prior periods is included in the tables below. In addition, an explanation of the ways in which HP management uses these non-GAAP measures to evaluate its business, the substance behind HP 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 management compensates for those limitations, and the substantive reasons why HP 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 operating profit, operating margin, net earnings, diluted earnings per share, or cash and cash equivalents prepared in accordance with GAAP.
EDS acquisition
HP completed its acquisition of Electronic Data Systems Corporation on Aug. 26, 2008. Results of, and comparisons to, the three months ended Oct. 31, 2008 include the results of operations of EDS only for the period from Aug. 26, 2008 through Oct. 31, 2008.
Forward-looking statements
This news release contains forward-looking statements that involve risks, uncertainties and assumptions. If the risks or uncertainties ever materialise or the assumptions prove incorrect, the results of 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 revenue, margins, expenses, earnings, tax provisions, cash flows, benefit obligations, share repurchases, acquisition synergies, currency exchange rates or other financial items; any statements of the plans, strategies and objectives of management for future operations, including execution of cost reduction programs and restructuring and integration plans; any statements concerning the expected development, performance or market share 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; and any statements of assumptions underlying any of the foregoing. Risks, uncertainties and assumptions include macroeconomic and geopolitical trends and events; execution and performance of contracts by HP and its suppliers, customers and partners; the challenge of managing asset levels, including inventory; the difficulty of aligning expense levels with revenue changes; assumptions related to pension and other post-retirement costs; expectations and assumptions relating to the execution and timing of cost reduction programs and restructuring and integration plans; the possibility that the expected benefits of business combination transactions may not materialise as expected; 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, 2008 and HP's other filings with the Securities and Exchange Commission, including HP's Quarterly Report on Form 10-Q for the fiscal quarter ended July, 31, 2009. As in prior periods, the financial information set forth in this release, including tax-related items, reflects estimates based on information available at this time. While HP believes these estimates to be meaningful, these amounts could differ materially from actual reported amounts in HP's Form 10-K for the fiscal year ended October 31, 2009. In particular, determining HP's actual tax balances and provisions as of October 31, 2009 requires extensive internal and external review of tax data (including consolidating and reviewing the tax provisions of numerous domestic and foreign entities), which is being completed in the ordinary course of preparing HP's Form 10-K. HP assumes no obligation and does not intend to update these forward-looking statements.
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(c) 2009 Hewlett-Packard Development Company, LP. The information contained herein is subject to change without notice. HP shall not be liable for technical or editorial errors or omissions contained herein.
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