HP Q1 Results Beat Expectations, Outlook Improves
Shares of computing giant Hewlett-Packard are rising after hours as the company soundly beat the expectations of analysts in the first quarter.
HP reported a profit of 90 cents per share, well ahead of the 84 cents forecast by analysts polled by Thomson Financial. Revenue was $28.15 billion, above the $27.2 billion that had been expected. Revenue fell by one percent year on year, which is better than the four percent decline that most people thought was coming.
And here’s a surprise: After backing out the effect of currency conversions, or what the accountants like to call a “constant currency basis,” HP revenue actually grew ever so slightly year on year. I just got off the phone with CEO Meg Whitman and she told me this: “It was small growth, 0.3 percent growth, but it’s a big turning point for the company if we can maintain it because we’ve seen nine or 10 quarters of revenue declines,” she said.
The company also raised the low end of its guidance, signaling that it sees an improvement in its business conditions going forward. For the second quarter, it expects earnings between 85 cents and 89 cents a share. For the year, it expects to earn between $3.60 and $3.75 a share, up from $3.55 on the low end previously.
HP shares initially rose by more than one percent after hours to $30.72 after the news was published. As of 4:30 pm ET they had fallen by 19 cents to $30 even.
There are a few surprises. PC sales rose slightly by three percent, which may or may not be the result of a large deal in India. Enterprise group sales also rose by one percent where they were expected to fall by two percent.
There was no surprise in the troubled Enterprise Services unit. Sales there fell by seven percent, pretty much in line with expectations. Printing revenue fell two percent, though hardware unit shipments rose five percent. Software sales fell four percent.
Another interesting stat: HP is exiting the quarter with $16 billion in cash, up from $12.2 billion previously, with no debt aside from the finance division. I wouldn’t say that cash is burning a hole in CEO Meg Whitman’s pocket just yet, but she has hinted she’s interested in doing an acquisition. I think it will be a cloud software company, but that’s just an educated guess. HP does need to buy something to spur some growth, but it will need to shop carefully.
Update: In the interview, Whitman told me that “acquisitions will be in HP’s future.” That’s a pretty clear signal. “We’re in the happy position now where we can make acquisitions in the small to medium-sized scale that further our strategic initiatives,” she said.
Those strategic initiatives are cloud computing, security, mobility and big data.
CFO Cathie Lesjak, though, reminded me that the capital allocation strategy at HP remains unchanged: 50 percent of free cash flow will be devoted to returns to shareholders, including dividends and share buybacks. No change there, but clearly a small acquisition is now on the table.
Here’s HP’s original announcement.
HP Reports Fiscal 2014 First Quarter Results
PALO ALTO, CA–(Marketwired – Feb 20, 2014) – HP ( NYSE : HPQ )
First quarter non-GAAP diluted net earnings per share of $0.90, up 10% from the prior-year period, versus the previously provided outlook of $0.82 to $0.86 per share
First quarter GAAP diluted net earnings per share of $0.74, up 17% from the prior-year period, versus the previously provided outlook of $0.60 to $0.64 per share
First quarter net revenue of $28.2 billion, down 1% from the prior-year period and flat on a constant currency basis
First quarter cash flow from operations of $3.0 billion, up 17% from the prior-year period
Returned $843 million to shareholders in the form of dividends and share repurchases in the first quarter
Improved operating company net cash position by $1.6 billion, the eighth consecutive quarterly improvement of over $1 billion
HP fiscal 2014 first quarter financial performance
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 first quarter ended Jan. 31, 2014.
First quarter GAAP diluted net earnings per share (EPS) was $0.74, up from $0.63 in the prior-year period and above the previously provided outlook of $0.60 to $0.64. First quarter non-GAAP diluted net EPS was $0.90, up from $0.82 in the prior-year period and above the previously provided outlook of $0.82 to $0.86. First quarter non-GAAP net earnings and non-GAAP diluted net EPS exclude after-tax costs of $317 million and $0.16 per diluted share, respectively, related to the amortization of intangible assets, restructuring charges and acquisition-related charges.
First quarter net revenue of $28.2 billion was down 1% from the prior-year period and flat on a constant currency basis.
“HP is in a stronger position today than we’ve been in quite some time,” said Meg Whitman , HP president and chief executive officer. “The progress we’re making is reflected in growth across several parts of our portfolio, the growing strength of our balance sheet, and the strong support we’re receiving from customers and channel partners. Innovation is igniting our comeback, and at a time when many of our competitors are confronting new challenges, two years of turnaround work is setting us up for an exciting future.”
For the fiscal 2014 second quarter, HP estimates non-GAAP diluted net EPS to be in the range of $0.85 to $0.89 and GAAP diluted net EPS to be in the range of $0.62 to $0.66. Fiscal 2014 second quarter non-GAAP diluted net EPS estimates exclude after-tax costs of approximately $0.23 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 $3.60 to $3.75 and GAAP diluted net EPS to be in the range of $2.85 to $3.00. Fiscal 2014 non-GAAP diluted net EPS estimates exclude after-tax costs of approximately $0.75 per share, related primarily to the amortization of intangible assets and restructuring charges.
HP generated $3.0 billion in cash flow from operations in the first quarter, up 17% from the prior-year period. Inventory ended the quarter at $6.0 billion, down 1 day year over year to 25 days. Accounts receivable ended the quarter at $13.5 billion, down 2 days year over year at 43 days. Accounts payable ended the quarter at $12.6 billion, up 4 days year over year to 52 days. HP’s dividend payment of $0.1452 per share in the first quarter resulted in cash usage of $278 million. HP also utilized $565 million of cash during the quarter to repurchase approximately 20.4 million shares of common stock in the open market. HP exited the quarter with $16.4 billion in gross cash.
Fiscal 2014 first quarter segment results
Personal Systems revenue was up 4% year over year with a 3.3% operating margin. Commercial revenue increased 8% and Consumer revenue declined 3%. Total units were up 6% with Desktops units down 3% and Notebooks units up 5%.
Printing revenue was down 2% year over year with a 16.8% operating margin. Total hardware units were up 5% with Commercial hardware units up 6% and Consumer hardware units up 4%. Supplies revenue was down 3%.
Enterprise Group revenue was up 1% year over year with a 14.4% operating margin. Industry Standard Servers revenue was up 6%, Storage revenue was flat, Business Critical Systems revenue was down 25%, Networking revenue was up 4% and Technology Services revenue was down 4%.
Enterprise Services revenue was down 7% year over year with a 1% operating margin. Application and Business Services revenue was down 4%, and Infrastructure Technology Outsourcing revenue declined 9%.
Software revenue was down 4% year over year with a 15.8% operating margin. Support revenue was down 2%, license revenue was down 6%, professional services revenue was down 12% and software-as-a-service (SaaS) revenue was up 6%.
HP Financial Services revenue was down 9% year over year with a 6% decrease in net portfolio assets and an 18% increase in financing volume. The business delivered an operating margin of 11.6%.
Corporate Investments revenue increased due to the sale of a portfolio of mobile computing intellectual property.
More information on HP’s earnings, including additional financial analysis and an earnings overview presentation, is available on HP’s Investor Relations website at http://www.hp.com/investor/home .