HP Reports Third Quarter 2010 Results
o Third quarter net revenue of $30.7 billion, up 11.4%, or $3.1 billion, from a
year earlier
o Third quarter GAAP operating profit up 5% to $2.3 billion; GAAP diluted
earnings per share of $0.75, up 9% from $0.69 a year earlier
o Third quarter non-GAAP operating profit up 14% to $3.4 billion; non-GAAP
diluted earnings per share of $1.08, up 17% from $0.92 a year earlier
o Broad-based year-over-year revenue growth driven by ESS at 19%, PSG at
17% and IPG at 9%
o Record services signings
o Solid year-over-year revenue growth across all regions
PALO ALTO, Calif., Aug. 19, 2010 - HP today announced financial results for its
third fiscal quarter ended July 31, 2010, with net revenue of $30.7 billion, up
11.4% from a year earlier including a favorable currency benefit of approximately
one percentage point.
In the third quarter, GAAP diluted earnings per share (EPS) was $0.75, up from $0.69 in the prior-year period. Non-GAAP diluted EPS was $1.08, up from $0.92
in the prior-year period, including a one-time negative impact of approximately
$0.02 per share related to a legal settlement. Non-GAAP financial information
excludes after-tax costs of approximately $0.33 per share and $0.23 per share in
the third quarter of fiscal 2010 and 2009, respectively, related primarily to the
amortization of purchased intangibles, restructuring charges and acquisition-related
charges.
"The broad-based strength of HP's Q3 performance further demonstrates the power
of our strategy and the discipline of our execution," said Cathie Lesjak, HP chief
financial officer and interim chief executive officer. "We raised our full-year outlook
and are continuing to build momentum in driving out costs, investing for profitable
growth and capitalizing on HP's competitive advantages in the marketplace."
Information about HP's use of non-GAAP financial information is provided under
"Use of non-GAAP financial information" below. Unless otherwise noted, all growth rates included in the narrative below reflect year-over-year comparisons.
Third quarter revenue was up 12% in the Americas to $14.2 billion. Revenue was
up 9% in Europe, the Middle East and Africa and up 14% in Asia Pacific to $10.9
billion and $5.6 billion, respectively. When adjusted for the effects of currency,
revenue was up 11% in the Americas, up 12% in Europe, the Middle East and
Africa and up 8% in Asia Pacific. Revenue from outside of the United States in the
third quarter accounted for 63% of total HP revenue, with revenue in the BRIC
countries (Brazil, Russia, India and China) increasing 21% while accounting for
11% of total HP revenue.
Services
Services revenue increased 1% to $8.6 billion. Infrastructure Technology Outsourcing revenue and Business Process Outsourcing each increased 1%, while
revenue in Technology Services declined roughly 1%. Application Services revenue
was up 4% versus the prior-year period. Operating profit was $1.4 billion, or
15.9% of revenue, up from $1.3 billion, or 15.3% of revenue, in the prior-year
period.
Enterprise Storage and Servers
Enterprise Storage and Servers (ESS) reported total revenue of $4.4 billion, up
19%. Industry Standard Server revenue increased 31%, while Storage revenue
increased 10% and Business Critical Systems revenue declined 15%. ESS blade
revenue was up 29%. Operating profit was $549 million, or 12.3% of revenue, up
from $381 million, or 10.2% of revenue, in the prior-year period.
HP Software
HP Software revenue increased 2% to $863 million. Business Technology
Optimization revenue increased 3%, and Other Software revenue decreased 1%.
Operating profit was $183 million, or 21.2% of revenue, up from $153 million, or
18.1% of revenue, in the prior-year period.
Personal Systems Group
Personal Systems Group (PSG) posted a 12% increase in unit shipments and
maintained the leading market share position in PCs worldwide. PSG revenue
increased 17% to $9.9 billion. Notebook revenue for the quarter was up 10%,
while Desktop revenue increased 27%. Commercial client revenue was up 25%,
while Consumer client revenue increased 12%. Operating profit was $469 million,
or 4.7% of revenue, up from $387 million, or 4.6% of revenue, in the prior-year
period.
Imaging and Printing Group
Imaging and Printing Group (IPG) revenue increased 9% to $6.2 billion. Supplies
revenue was up 5%, while Commercial hardware revenue and Consumer hardware
revenue increased 28% and 4%, respectively. Printer unit shipments increased
16%, with Commercial printer hardware units up 44% and Consumer printer
hardware units up 9%. Operating profit was $1.0 billion, or 16.9% of revenue,
versus $960 million, or 17.0% of revenue, in the prior-year period.
Corporate Investments
ProCurve revenue increased 42%, and HP Networking overall increased 198%
year over year including the impact of the 3Com acquisition.
HP Financial Services
HP Financial Services (HPFS) revenue increased 14% to $764 million. Financing
volume increased 3%, and net portfolio assets increased 13%. Operating margin
was 9.4%, up from 7.9% in the prior-year period.
Asset management
HP generated $3.3 billion in cash flow from operations for the third quarter.
Inventory ended the quarter at $7.2 billion, with days of inventory up to 28 from
25 in the prior-year period. Accounts receivable of $15.6 billion was down 2 days
year over year. Accounts payable ended the quarter at $14.9 billion, up 2 days
over the prior-year period. HP's dividend payment of $0.08 per share in the third
quarter resulted in cash usage of $205 million. HP also utilized $2.6 billion of cash
during the quarter to repurchase approximately 55 million shares of common stock
in the open market. HP exited the quarter with $14.8 billion in gross cash.
Outlook
For the fourth quarter of fiscal 2010, HP estimates revenue of approximately $32.5
billion to $32.7 billion, GAAP diluted EPS in the range of $1.03 to $1.05, and
non-GAAP diluted EPS in the range of $1.25 to $1.27. Fourth quarter fiscal 2010
non-GAAP diluted EPS estimates exclude after-tax costs of approximately $0.22 per
share, related primarily to the amortization of purchased intangibles, restructuring
charges and acquisition-related charges.
For the full year, HP expects revenue in the range of $125.3 billion to $125.5
billion. HP expects FY10 GAAP diluted EPS to be in the range of $3.62 to $3.64
and non-GAAP diluted EPS in the range of $4.49 to $4.51. FY10 non-GAAP
diluted EPS estimates exclude after-tax costs of approximately $0.87 per share,
related primarily to the amortization 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.
HP's Q3 FY10 earnings conference call is accessible via an audio webcast at
www.hp.com/investor/2010q3webcast.
About HP
HP creates new possibilities for technology to have a meaningful impact on people,
businesses, governments and society. The world's largest technology company, HP
brings together a portfolio that spans printing, personal computing, software,
services and IT infrastructure to solve customer problems. More information about
HP (NYSE: HPQ) is available at www.hp.com.
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
4/21
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.
