HP Reports $2.1 Billion Profit
Press release from the issuing company
ALO ALTO, Calif., May 20, 2008 -- HP today announced financial results for its second fiscal quarter ended April 30, 2008, with net revenue of $28.3 billion, up 11% from a year earlier and up 5% when adjusted for the effects of currency.
In the second quarter, GAAP operating profit was $2.6 billion and GAAP diluted earnings per share (EPS) was $0.80, up from $0.65 in the prior-year period. Non-GAAP operating profit was $2.8 billion, with non-GAAP diluted EPS of $0.87 up from $0.70 in the prior-year period. Non-GAAP financial information excludes $172 million of adjustments on an after-tax basis, or $0.07 per diluted share, related primarily to amortization of purchased intangibles.
"HP turned in another strong quarter, supported by improvement across our businesses. With 70 percent of revenue now coming from outside the U.S., we benefited from robust demand in emerging economies," said Mark Hurd, HP chairman and chief executive officer. "The company's financial outlook demonstrates its strength in the global marketplace."
Revenue in the Americas grew 4% on a year-over-year basis to $11.1 billion. Revenue grew 16% in Europe, the Middle East and Africa to $11.9 billion. Revenue grew 16% in Asia Pacific to $5.2 billion. When adjusted for the effects of currency, revenue in the Americas grew 2%, revenue in Europe, the Middle East and Africa grew 6%, and revenue in Asia Pacific grew 7%. Revenue from outside of the United States in the second quarter was 70% of the total, with revenue in the BRIC countries (Brazil, Russia, India and China) growing 26% over the prior-year period and accounting for 10% of total revenue.
Personal Systems Group
Personal Systems Group (PSG) revenue grew 16% year over year to $10.1 billion, with unit shipments up 21% on a year-over-year basis. Notebook revenue for the quarter grew 31% over the prior-year period, while desktop revenue was flat. Commercial client revenue grew 17% year over year, while Consumer client revenue increased 16%. Operating profit was $544 million, or 5.4% of revenue, up from $417 million, or 4.8% of revenue, in the prior-year period.
Imaging and Printing Group
Imaging and Printing Group (IPG) revenue grew 6% year over year to $7.6 billion. On a year-over-year basis, supplies revenue grew 8%, Commercial hardware revenue grew 6% and Consumer hardware revenue declined 3%. Printer unit shipments increased 6% year over year, with Consumer printer hardware units up 4% and Commercial printer hardware units up 9%. Momentum in key growth initiatives continued, with solid growth in both the Graphic Arts and the Enterprise businesses. Operating profit was $1.2 billion, or 16.2% of revenue, versus $1.2 billion, or 16.3% of revenue, in the prior-year period.
Enterprise Storage and Servers
Enterprise Storage and Servers (ESS) reported revenue of $4.8 billion, up 4% over the prior-year period fueled by ESS blades, which grew 68%, and storage, which grew 14%. Storage revenue growth was fueled by the high-end XP line, which grew 21%, and the midrange EVA line, which grew 17%. On a year-over-year basis, Industry Standard Server revenue was flat. Business Critical Systems revenue increased 7%. Operating profit was $655 million, or 13.7% of revenue, up from $452 million, or 9.8% of revenue, in the prior-year period.
HP Services
HP Services (HPS) revenue increased 12% year over year to $4.6 billion. Revenue in Technology Services grew 10% with Outsourcing Services and Consulting and Integration up 14% and 15%, respectively, compared with the prior-year period. Operating profit was $508 million, or 11.0% of revenue, up from $449 million, or 10.9% of revenue, in the prior-year period.
HP Software
HP Software revenue grew 28% compared with the prior-year period to $727 million, led by 36% growth in the Business Technology Optimization portfolio. Operating profit was $93 million, or 12.8% of revenue, up from $7 million, or 1.2% of revenue, in the prior-year period.
Financial Services
HP Financial Services (HPFS) reported revenue of $685 million, an increase of 25% year over year. Financing volume and net portfolio assets increased 15% and 14%, respectively, over the prior-year period. Operating margin was 6.9% of revenue, up from 6.5% in the comparable period last year.
Asset management
HP generated $4.8 billion in cash flow from operations for the quarter. Inventory ended the quarter at $7.7 billion, down 2 days over the prior year. Accounts receivable of $13.6 billion was up 2 days over the prior-year period. Accounts payable ended the quarter at $12.4 billion down 1 day from the prior-year period. HP's dividend payment of $0.08 per share in the second quarter resulted in cash usage of $197 million. HP utilized $2.8 billion of cash during the second quarter to repurchase approximately 66 million shares of common stock from the open market. HP exited the quarter with $11.8 billion in gross cash, which includes cash and cash equivalents of $11.6 billion, short-term investments of $56 million, and certain long-term investments of $117 million.
Outlook
HP estimates Q3 FY08 revenue will be approximately $27.3 billion to $27.4 billion.
Third quarter FY08 GAAP diluted EPS is expected to be approximately $0.76 to $0.77 and non-GAAP diluted EPS is expected to be approximately $0.82 to $0.83. Third quarter FY08 non-GAAP diluted EPS estimates exclude after-tax costs of approximately $0.06 per share, related primarily to the amortization of purchased intangibles.
HP estimates FY08 revenue will be approximately $114.2 billion to $114.4 billion, up from previous guidance of $113.5 billion to $114.0 billion.
FY08 GAAP diluted EPS is expected to be in the range of $3.30 to $3.34, and FY08 non-GAAP diluted EPS is expected to be in the range of $3.54 to $3.58. FY08 non-GAAP diluted EPS estimates exclude after-tax costs of approximately $0.24 per share, related primarily to the amortization of purchased intangibles.
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.
HP's Q2 FY08 earnings conference call is accessible via an audio webcast at www.hp.com/investor/q22008webcast.
In the second quarter, GAAP operating profit was $2.6 billion and GAAP diluted earnings per share (EPS) was $0.80, up from $0.65 in the prior-year period. Non-GAAP operating profit was $2.8 billion, with non-GAAP diluted EPS of $0.87 up from $0.70 in the prior-year period. Non-GAAP financial information excludes $172 million of adjustments on an after-tax basis, or $0.07 per diluted share, related primarily to amortization of purchased intangibles.
"HP turned in another strong quarter, supported by improvement across our businesses. With 70 percent of revenue now coming from outside the U.S., we benefited from robust demand in emerging economies," said Mark Hurd, HP chairman and chief executive officer. "The company's financial outlook demonstrates its strength in the global marketplace."
Revenue in the Americas grew 4% on a year-over-year basis to $11.1 billion. Revenue grew 16% in Europe, the Middle East and Africa to $11.9 billion. Revenue grew 16% in Asia Pacific to $5.2 billion. When adjusted for the effects of currency, revenue in the Americas grew 2%, revenue in Europe, the Middle East and Africa grew 6%, and revenue in Asia Pacific grew 7%. Revenue from outside of the United States in the second quarter was 70% of the total, with revenue in the BRIC countries (Brazil, Russia, India and China) growing 26% over the prior-year period and accounting for 10% of total revenue.
Personal Systems Group
Personal Systems Group (PSG) revenue grew 16% year over year to $10.1 billion, with unit shipments up 21% on a year-over-year basis. Notebook revenue for the quarter grew 31% over the prior-year period, while desktop revenue was flat. Commercial client revenue grew 17% year over year, while Consumer client revenue increased 16%. Operating profit was $544 million, or 5.4% of revenue, up from $417 million, or 4.8% of revenue, in the prior-year period.
Imaging and Printing Group
Imaging and Printing Group (IPG) revenue grew 6% year over year to $7.6 billion. On a year-over-year basis, supplies revenue grew 8%, Commercial hardware revenue grew 6% and Consumer hardware revenue declined 3%. Printer unit shipments increased 6% year over year, with Consumer printer hardware units up 4% and Commercial printer hardware units up 9%. Momentum in key growth initiatives continued, with solid growth in both the Graphic Arts and the Enterprise businesses. Operating profit was $1.2 billion, or 16.2% of revenue, versus $1.2 billion, or 16.3% of revenue, in the prior-year period.
Enterprise Storage and Servers
Enterprise Storage and Servers (ESS) reported revenue of $4.8 billion, up 4% over the prior-year period fueled by ESS blades, which grew 68%, and storage, which grew 14%. Storage revenue growth was fueled by the high-end XP line, which grew 21%, and the midrange EVA line, which grew 17%. On a year-over-year basis, Industry Standard Server revenue was flat. Business Critical Systems revenue increased 7%. Operating profit was $655 million, or 13.7% of revenue, up from $452 million, or 9.8% of revenue, in the prior-year period.
HP Services
HP Services (HPS) revenue increased 12% year over year to $4.6 billion. Revenue in Technology Services grew 10% with Outsourcing Services and Consulting and Integration up 14% and 15%, respectively, compared with the prior-year period. Operating profit was $508 million, or 11.0% of revenue, up from $449 million, or 10.9% of revenue, in the prior-year period.
HP Software
HP Software revenue grew 28% compared with the prior-year period to $727 million, led by 36% growth in the Business Technology Optimization portfolio. Operating profit was $93 million, or 12.8% of revenue, up from $7 million, or 1.2% of revenue, in the prior-year period.
Financial Services
HP Financial Services (HPFS) reported revenue of $685 million, an increase of 25% year over year. Financing volume and net portfolio assets increased 15% and 14%, respectively, over the prior-year period. Operating margin was 6.9% of revenue, up from 6.5% in the comparable period last year.
Asset management
HP generated $4.8 billion in cash flow from operations for the quarter. Inventory ended the quarter at $7.7 billion, down 2 days over the prior year. Accounts receivable of $13.6 billion was up 2 days over the prior-year period. Accounts payable ended the quarter at $12.4 billion down 1 day from the prior-year period. HP's dividend payment of $0.08 per share in the second quarter resulted in cash usage of $197 million. HP utilized $2.8 billion of cash during the second quarter to repurchase approximately 66 million shares of common stock from the open market. HP exited the quarter with $11.8 billion in gross cash, which includes cash and cash equivalents of $11.6 billion, short-term investments of $56 million, and certain long-term investments of $117 million.
Outlook
HP estimates Q3 FY08 revenue will be approximately $27.3 billion to $27.4 billion.
Third quarter FY08 GAAP diluted EPS is expected to be approximately $0.76 to $0.77 and non-GAAP diluted EPS is expected to be approximately $0.82 to $0.83. Third quarter FY08 non-GAAP diluted EPS estimates exclude after-tax costs of approximately $0.06 per share, related primarily to the amortization of purchased intangibles.
HP estimates FY08 revenue will be approximately $114.2 billion to $114.4 billion, up from previous guidance of $113.5 billion to $114.0 billion.
FY08 GAAP diluted EPS is expected to be in the range of $3.30 to $3.34, and FY08 non-GAAP diluted EPS is expected to be in the range of $3.54 to $3.58. FY08 non-GAAP diluted EPS estimates exclude after-tax costs of approximately $0.24 per share, related primarily to the amortization of purchased intangibles.
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.
HP's Q2 FY08 earnings conference call is accessible via an audio webcast at www.hp.com/investor/q22008webcast.
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