HP Reports Third Quarter 2011 Results and Initiates Company Transformation

“Our outlook reflects the challenges that we face across our businesses,” said Cathie Lesjak, HP executive vice president and chief financial officer. “Dealing with these challenges will take time, but HP will navigate through the transformation to become a more focused, streamlined company.”

Trends and regional performance

HP’s Commercial businesses remain healthy with 5% revenue growth year over year. HP’s Consumer businesses, within PSG and IPG, were collectively down 15% year over year.

Third quarter revenue was flat year over year in the Americas as well as in Europe, the Middle East and Africa at $14.1 billion and $11.0 billion, respectively. Revenue in Asia Pacific was $6.1 billion, representing a 9% increase year over year. When adjusted for the effects of currency, revenue was down 2% in the Americas, down 5% in Europe, the Middle East and Africa and up 1% in Asia Pacific. Revenue from outside of the United States in the third quarter accounted for 65% of total HP revenue. BRIC countries (Brazil, Russia, India and China) generated revenue of $3.7 billion, up 12% over the year-ago period, accounting for 12% of total HP revenue.

Business group highlights

  • Services revenue grew 4% year over year with a 13.5% operating margin. HP also announced the appointment of John Visentin as the new executive vice president for Enterprise Services reporting to Apotheker.
  • Enterprise Servers, Storage and Networking (ESSN) revenue grew 7% year over year with a 13.0% operating margin. Networking was up 15%, Industry Standard Servers was up 9%, Business Critical Systems was down 9%, and HP Storage was up 8%. 3PAR revenue accelerated, with triple-digit year-over-year growth operationally.
  • HP Software revenue grew 20% year over year with a 19.4% operating margin. HP Software revenue was driven by strong growth in licenses and services of 29% and 30%, respectively.
  • Personal Systems Group (PSG) revenue declined 3% year over year with a 5.9% operating margin. PSG remains the PC market leader in terms of units, revenue and profit share. Commercial Client revenue grew 9% and Consumer Client revenue declined 17%.
  • Imaging and Printing Group (IPG) revenue declined 1% year over year with a 14.7% operating margin. Commercial revenue was down 7% year over year with commercial printer hardware units up 1%. Consumer printer hardware revenue was up 1% year over year on 7% unit growth. IPG continued to drive innovation and momentum with digital presses and web-connected printers.
  • Financial Services revenue grew 22% year over year with a 9.4% operating margin. Financial Services continued to see its strong performance driven by both double-digit growth in lease volume and a healthy improvement in portfolio assets.

Asset management

HP generated $3.2 billion in cash flow from operations in the third quarter. Inventory ended the quarter at $7.4 billion, with days of inventory flat year over year at 28 days. Accounts receivable of $18.1 billion was up 6 days year over year at 52 days. Accounts payable ended the quarter at $14.5 billion, down 3 days from the prior-year period. HP’s dividend payment of $0.12 per share in the third quarter resulted in cash usage of $248 million. HP also utilized $4.6 billion of cash during the quarter to repurchase approximately 128 million shares of common stock in the open market. HP exited the quarter with $13.0 billion in gross cash.

Outlook

For the fourth quarter of fiscal 2011, HP estimates revenue of approximately $32.1 billion to $32.5 billion, GAAP diluted EPS of approximately $0.44 to $0.55, and non-GAAP diluted EPS of approximately $1.12 to $1.16.

Fourth quarter fiscal 2011 non-GAAP diluted EPS estimates exclude after-tax costs of approximately $0.61 to $0.68 per share, related primarily to restructuring and shutdown costs associated with webOS devices, the amortization and impairment of purchased intangibles, restructuring charges and acquisition-related charges.

HP expects full year fiscal 2011 revenue in the range $127.2 billion to $127.6 billion, GAAP diluted EPS of $3.59 to $3.70, and non-GAAP diluted EPS of $4.82 to $4.86.

Full year fiscal 2011 non-GAAP diluted EPS estimates exclude after-tax costs of approximately $1.16 to $1.23 per share, related primarily to restructuring and shutdown costs associated with webOS devices, the amortization and impairment of purchased intangibles, restructuring charges and acquisition-related charges.

More information on HP’s quarterly earnings, including additional financial analysis and an earnings overview presentation, is available on HP’s Investor Relations website at www.hp.com/investor/home.


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