PALO ALTO, Calif.--Aug. 16, 2005-- HP today reported financial results for its third fiscal quarter ended July 31, 2005. Third quarter net revenue increased 10% year- over-year to $20.8 billion. Non-GAAP(1) operating profit was $1.2 billion, with non-GAAP diluted earnings per share (EPS) of $0.36, up from $0.24 in the prior-year period. Non-GAAP financial information for the third quarter excludes $988 million of adjustments(1) on an after-tax basis, or $0.33 per diluted share, related primarily to a tax adjustment resulting from HP's decision in the third quarter to repatriate, in the third and fourth quarters, $14.5 billion in cash from foreign earnings. GAAP operating profit for the third quarter was $913 million and GAAP diluted EPS was $0.03 per share, down from $0.19 in the prior-year period.
"We executed well in the third quarter with double-digit revenue growth, solid margin improvements in key segments and strong cash flow," said Mark Hurd, HP chief executive officer and president. "I'm encouraged by what we have achieved to date, and we are focused on driving further performance improvements."
During the quarter, on a year-over-year basis, revenue in the Americas grew 8% to $9.0 billion, Europe, the Middle East and Africa grew 10% to $8.2 billion, and Asia Pacific grew 15% to $3.5 billion. On a consolidated basis, when adjusted for the effects of currency, third quarter revenue grew 7% year-over-year.
Personal Systems Group
Personal Systems Group (PSG) revenue grew 8% year-over-year to $6.4 billion, with unit shipments up 14%. On a year-over-year basis, desktop revenue decreased 3% and notebook revenue grew 21%. Revenue for commercial clients, which includes workstations, grew 6% over the prior-year period, while revenue in consumer clients grew 8%. PSG reported an operating profit of $163 million, or 2.6% of revenue, up from a profit of $23 million in the prior-year period.
Imaging and Printing Group
Imaging and Printing Group (IPG) posted quarterly revenue of $5.9 billion, up 5% year-over-year. On a year-over-year basis, consumer hardware revenue increased 1%, with unit shipments up 8%. Commercial hardware revenue grew 5%, with unit shipments up 12%. Color laser unit shipments increased 31% year-over-year and multi-function printer (MFP) shipments increased 67%, reflecting continued momentum in key growth initiatives. Supplies revenue grew 6%. Operating profit was $771 million, or 13.0% of revenue, down from a profit of $836 million in the prior-year period.
Enterprise Storage and Servers
Enterprise Storage and Servers (ESS) reported revenue of $4.0 billion, up 20% over the prior-year period. On a year-over-year basis, industry-standard server revenue increased 28%, business-critical systems (BCS) revenue grew 7% and networked storage revenue grew 15%. Within BCS, revenue in HP Integrity servers grew 113% year-over-year and HP-UX revenue grew 8%. ESS reported an operating profit of $150 million, or 3.8% of revenue, up from a loss of $211 million in the prior-year period.
HP Services (HPS) revenue grew 10% year-over-year to $3.8 billion. On a year-over- year basis, Managed Services revenue grew 21%, Technology Services grew 7% and Consulting and Integration grew 12%. Operating profit was $256 million, or 6.7% of revenue, down from a profit of $314 million in the prior-year period.
Software reported quarterly revenue of $249 million, an increase of 11% year-over- year, with revenue in HP OpenView and HP OpenCall increasing 13% and 5%, respectively. Software reported an operating loss of $40 million, compared with a loss of $48 million in the prior-year period.
HP Financial Services (HPFS) reported revenue of $489 million, essentially flat year-over-year. Finance volume, a leading indicator of future revenue, grew 4% over the prior-year period, and net portfolio assets grew 1 percent to $6.9 billion. Operating profit was $58 million, or 11.9% of revenue, up from a profit of $42 million in the prior-year period.
Inventory ended the quarter at $6.6 billion, up $180 million sequentially and down $101 million year-over-year. Accounts receivable decreased $502 million sequentially and increased $299 million over the prior-year period to $8.8 billion. HP's dividend payment of $0.08 per share in the third quarter resulted in cash usage of $231 million. In addition, HP utilized $860 million of cash during the third quarter to repurchase stock. HP exited the quarter with $14.6 billion in gross cash, which includes cash and cash equivalents of $14.4 billion and short- and certain long-term investments of $117 million.
HP estimates Q4 FY05 revenue will be in the range of $22.4 billion to $22.8 billion, with non-GAAP earnings per share in the range of $0.44 to $0.47. This excludes after-tax costs of approximately $0.03 per share from amortization of purchased intangible assets, and approximately $900 million, or $0.22 per share in workforce reduction costs. It also excludes a one-time credit of approximately $200 million, or $0.05 per share, related to benefit plan changes.
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/hpinfo/investor/.
HP's Q3 FY05 earnings conference call is accessible via an audio webcast at www.hp.com/hpinfo/investor/financials/quarters/2005/q3webcast.html.
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