HP reports Q1 2012 financials: $30 billion net revenue, $1.5 billion net earnings, big drop in PC sales

HP reported results for its first fiscal quarter of 2012 this afternoon, including $30 billion in net revenue (down seven percent from the previous year), and net earnings of $1.5 billion (down a full 44 percent). Partly contributing to that drop is a slump from its Personal Systems Group, which saw revenue slip 15 percent year-over-year, and total desktop and notebook units decline a rather drastic 19 and 18 percent, respectively. The company's Imaging and Printing Group also saw a seven percent decline in revenue, with the total number of printer units slipping 15 percent. HP's services business managed to eke out a one percent growth with revenue of $8.6 billion, though, while its software business saw the biggest growth in any one area at 30 percent (that includes results from the recently-acquired Autonomy). The company's full rundown can be found in the press release after the break, with additional numbers available at the source link below.

Update: On the company's earnings call, CEO Meg Whitman laid some of the blame for PSG's decline on hard drive shortages, but also said that HP has "under-invested in innovation for the last several years" and "been late to market too often," adding that "we have to lead again." A transcript of Whitman's prepared remarks can be found here.

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HP Reports First Quarter 2012 Results
PALO ALTO, CA, Feb 22, 2012 (MARKETWIRE via COMTEX) --HP (NYSE: HPQ)

-- First quarter non-GAAP diluted earnings per share of $0.92, down 32%
from the prior-year period and above previously provided outlook of
$0.83 to $0.86 per share


-- First quarter GAAP diluted earnings per share of $0.73, down 38% from
the prior-year period and above previously provided outlook of $0.61
to $0.64 per share


-- First quarter net revenue of $30.0 billion, down 7% from the
prior-year period


-- Returned $1.0 billion in cash to shareholders in the form of dividends
and share repurchases


HP (NYSE: HPQ) today announced financial results for its first fiscal quarter ended January 31, 2012. For the quarter, net revenue of $30.0 billion was down 7% from the prior-year period, and down 8% when adjusted for the effects of currency.

GAAP diluted earnings per share (EPS) was $0.73, down 38% from the prior-year period. Non-GAAP diluted EPS was $0.92, down 32% from the prior-year period. First quarter non-GAAP earnings information excludes after-tax costs of $364 million, or $0.19 per diluted share, related to amortization of purchased intangible assets, restructuring charges and acquisition-related charges.

"In the first quarter, we delivered on our Q1 outlook and remained focused on the fundamentals to drive long-term sustainable returns," said Meg Whitman, HP president and chief executive officer. "We are taking the necessary steps to improve execution, increase effectiveness and capitalize on emerging opportunities to reassert HP's technology leadership."

Earnings highlights



------------------------------
Q1 FY12 Q1 FY11 Y/Y
-------------------------- ------------------------------
GAAP net revenue ($B) $30.0 $32.3 (7%)
-------------------------- ------------------------------
GAAP operating margin 6.8% 10.5% (3.7 pts)
-------------------------- ------------------------------
GAAP net earnings ($B) $1.5 $2.6 (44%)
-------------------------- ------------------------------
GAAP diluted EPS $0.73 $1.17 (38%)
-------------------------- ------------------------------
Non-GAAP operating margin 8.6% 12.4% (3.8 pts)
-------------------------- ------------------------------
Non-GAAP net earnings ($B) $1.8 $3.0 (40%)
-------------------------- ------------------------------
Non-GAAP diluted EPS $0.92 $1.36 (32%)
-------------------------- ------------------------------



Information about HP's use of non-GAAP financial information is provided under "Use of non-GAAP financial information" below.

Trends and regional performance In the Americas, first quarter revenue was $13.2 billion, down 9% year over year and down 8% when adjusted for the effects of currency. Europe, the Middle East and Africa revenue of $11.7 billion was down 4% year over year and down 5% when adjusted for the effects of currency. Revenue in Asia Pacific was $5.2 billion, representing a 10% decrease year over year and down 12% when adjusted for the effects of currency.

Revenue from outside of the United States in the first quarter accounted for 66% of total HP revenue. BRIC countries (Brazil, Russia, India and China) generated revenue of $3.1 billion, down 13% from the year-ago period, and representing 10% of total HP revenue.

Revenue in HP's commercial businesses declined 4% year over year. Revenue in HP's consumer businesses, within PSG and IPG, was collectively down 23% year over year.

Business group results

-- Personal Systems Group (PSG) revenue declined 15% year over year with
a 5.2% operating margin. Commercial client revenue declined 7%,
Consumer client revenue declined 25% and Workstations revenue was
flat. Total units were down 18%, with a 19% decline in desktop units
and an 18% decline in notebook units.


-- Services revenue of $8.6 billion grew 1% year over year with a 10.5%
operating margin. Technology Services revenue grew 2%, Application and
Business Services revenue was flat and IT Outsourcing revenue grew 2%
year over year.


-- Imaging and Printing Group (IPG) revenue declined 7% year over year
with a 12.2% operating margin. Commercial hardware revenue was down 5%
year over year with commercial printer units down 10%. Consumer
hardware revenue was down 15% year over year with a 15% decline in
printer units.


-- Enterprise Servers, Storage and Networking (ESSN) revenue declined 10%
year over year with an 11.2% operating margin. Networking revenue was
flat, Industry Standard Servers revenue was down 11%, Business
Critical Systems revenue was down 27% and Storage revenue was down 6%
year over year.


-- Software revenue grew 30% year over year with a 17.1% operating
margin, including the results of Autonomy. Software revenue was driven
by 12% license growth, 22% support growth and 108% growth in
services.


-- HP Financial Services revenue grew 15% year over year driven by an 8%
increase in net portfolio assets and flat financing volume. The
business delivered a 9.6% operating margin.

Asset management HP generated $1.2 billion in cash flow from operations in the first quarter. Inventory ended the quarter at $7.3 billion, with days of inventory up 3 days year over year to 28 days. Accounts receivable of $15.9 billion was up 2 days year over year to 48 days. Accounts payable ended the quarter at $12.4 billion, down 2 days from the prior-year period at 48 days. HP's dividend payment of $0.12 per share in the first quarter resulted in cash usage of $244 million. HP also utilized $780 million of cash during the quarter to repurchase approximately 29 million shares of common stock in the open market. HP exited the quarter with $8.2 billion in gross cash.

Outlook For the second quarter of fiscal 2012, HP estimates non-GAAP diluted EPS to be in the range of $0.88 to $0.91 and GAAP diluted EPS to be in the range of $0.68 to $0.71.

Second quarter fiscal 2012 non-GAAP diluted EPS estimates exclude after-tax costs of approximately $0.20 per share, related primarily to the amortization of purchased intangible assets, restructuring charges and acquisition-related charges.

There is no change to HP's previously provided full year fiscal 2012 outlook of non-GAAP diluted EPS of at least $4.00 and GAAP diluted EPS of approximately $3.20.

Full year fiscal 2012 non-GAAP diluted EPS estimates exclude after-tax costs of approximately $0.80 per share, related primarily to the amortization of purchased intangible assets, restructuring charges and acquisition-related charges.

As part of its annual financial review process, HP implemented several organizational realignments effective Q1 FY12. To provide improved visibility and comparability, HP has reflected these realignments in prior financial reporting periods on an as-if basis. These realignments resulted in, among other things, the transfer of revenue within and among various financial reporting segments and business units. The changes do not impact HP's previously reported consolidated net revenue, earnings from operations, net earnings or earnings per share at the company level. To reflect these changes, HP released modified quarterly and annual consolidated condensed statements of earnings, segment financial results and statements of business unit revenue for fiscal 2010 and 2011, which are available on HP's Investor Relations website at www.hp.com/investor/home.

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 Q1 FY12 earnings conference call is accessible via an audio webcast at www.hp.com/investor/2012Q1webcast.

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 is available at http://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 net revenue, non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings, non-GAAP diluted earnings per share, gross cash and free cash flow. 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 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 revenue, operating profit, operating margin, net earnings, diluted earnings per share, cash and cash equivalents or cash flow from operations prepared in accordance with GAAP.

Forward-looking statements This news release contains forward-looking statements that involve risks, uncertainties and assumptions. If the risks or uncertainties ever materialize or the assumptions prove incorrect, the results of HP may differ materially from those expressed or implied by such forward-looking statements and assumptions. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including but not limited to any projections of revenue, margins, expenses, earnings, earnings per share, tax provisions, cash flows, benefit obligations, share repurchases, currency exchange rates, the impact of acquisitions or other financial items; any statements of the plans, strategies and objectives of management for future operations, including the execution of cost reduction programs and restructuring and integration plans; any statements concerning the expected development, performance or market share relating to products or services; any statements regarding current or future macroeconomic trends or events and the impact of those trends and events on HP and its financial performance; any statements regarding pending investigations, claims or disputes; any statements of expectation or belief; and any statements of assumptions underlying any of the foregoing. Risks, uncertainties and assumptions include the impact of macroeconomic and geopolitical trends and events; the competitive pressures faced by HP's businesses; the development and transition of new products and services and the enhancement of existing products and services to meet customer needs and respond to emerging technological trends; the execution and performance of contracts by HP and its suppliers, customers and partners; the protection of HP's intellectual property assets, including intellectual property licensed from third parties; integration and other risks associated with business combination and investment transactions; the hiring and retention of key employees; assumptions related to pension and other post-retirement costs; expectations and assumptions relating to the execution and timing of cost reduction programs and restructuring and integration plans; the resolution of pending investigations, claims and disputes; and other risks that are described in HP's Annual Report on Form 10-K for the fiscal year ended October 31, 2011 and HP's other filings with the Securities and Exchange Commission. As in prior periods, the financial information set forth in this release, including tax-related items, reflects estimates based on information available at this time. While HP believes these estimates to be meaningful, these amounts could differ materially from actual reported amounts in HP's Form 10-Q for the fiscal quarter ended January 31, 2012. In particular, determining HP's actual tax balances and provisions as of January 31, 2012 requires extensive internal and external review of tax data (including consolidating and reviewing the tax provisions of numerous domestic and foreign entities), which is being completed in the ordinary course of preparing HP's Form 10-Q. HP assumes no obligation and does not intend to update these forward-looking statements.

Copyright 2012 Hewlett-Packard Development Company, L.P. The information contained herein is subject to change without notice. HP shall not be liable for technical or editorial errors or omissions contained herein.