HP exceeds Q3 expectations: rakes $29.7 billion in revenue, still posts a loss

To say that HP is in a bit of a transitional period would probably be an understatement. As expected, the $8 billion hit it took over the EDS purchase severely impacted its bottom line. While revenue was down year-over-year to $29.7 billion, that five percent drop equated to a 568 percent decline in income as the company posted a loss of $8.9 billion. If not for the combined $10.8 billion in charges it was forced to absorb this quarter, the company's net-income would have stood at $2 billion -- which would have been a significant improvement over Q2's $1.6 billion in profit. While such a staggering loss does appear bad, the non-GAAP results should give investors some hope, as the merger and layoff related charges are a one-time deal. Still, the outlook continues to be grim at the Personal Systems Group which has seen revenue drop 10 percent over the last year. The lone bright spot in the company's line up appears to be its software division, where revenue has grown 18 percent year-over-year. CEO Meg Whitman issued a statement alongside the Q3 2012 earnings report looking to assuage nervous investors' fears. "HP is still in the early stages of a multi-year turnaround, and we're making decent progress despite the headwinds," she asserts and assures that better days lie ahead. For more financial fun, check out the PR after the break and all the tables and charts you can handle at the source.

Show full PR text

HP Reports Third Quarter 2012 Results
Aug 22, 2012 (Marketwire via COMTEX) -- HP (NYSE: HPQ)

Third quarter non-GAAP diluted earnings per share of $1.00, above previously provided outlook of $0.94 to $0.97 per share and in line with pre-announcement

Third quarter GAAP loss per share of $4.49 Third quarter net revenue of $29.7 billion, down 5% from the prior-year period and down 2% when adjusted for the effects of currency

Returned $625 million in cash to shareholders in the form of dividends and share repurchases HP third quarter fiscal 2012 financial performance

Q3 FY12 Q3 FY11 Y/Y
GAAP net revenue ($B) $29.7 $31.2 (5%)
GAAP operating margin (29.7%) 8.1% (37.8 pts.)
GAAP net (loss) earnings ($B) ($8.9) $1.9 (568%)
GAAP (loss) diluted EPS ($4.49) $0.93 (583%)
Non-GAAP operating margin 9.2% 9.8% (0.6 pts.)
Non-GAAP net earnings ($B) $2.0 $2.3 (14%)
Non-GAAP diluted EPS $1.00 $1.10 (9%)

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

HP (NYSE: HPQ) today announced financial results for its third fiscal quarter ended July 31, 2012. For the quarter, net revenue of $29.7 billion was down 5% year over year and down 2% when adjusted for the effects of currency.

GAAP loss per share was $4.49, down from earnings per share (EPS) of $0.93 in the prior-year period. Non-GAAP diluted EPS was $1.00, down 9% from the prior-year period. Third quarter non-GAAP earnings information excludes after-tax costs of $10.8 billion, or $5.49 per diluted share, related to the amortization and impairment of purchased intangible assets, the impairment of goodwill, restructuring charges, acquisition-related charges and charges relating to the wind-down of certain retail publishing business activities, including the previously announced charges related to the impairment of goodwill within HP's Services segment, the restructuring program announced in May 2012, and the impairment of the purchased intangible asset associated with the "Compaq" trade name.

"HP is still in the early stages of a multi-year turnaround, and we're making decent progress despite the headwinds," said Meg Whitman, HP president and chief executive officer. "During the quarter we took important steps to focus on strategic priorities, manage costs, drive needed organizational change, and improve the balance sheet. We continue to deliver on what we say we will do."

Business Group Results

Personal Systems Group (PSG) revenue was down 10% year over year with a 4.7% operating margin. Commercial revenue decreased 9%, and Consumer revenue declined 12%. Desktop units were down 6%, notebook units were down 12% and total units were down 10%.
Imaging and Printing Group (IPG) revenue declined 3% year over year with a 15.8% operating margin. Commercial hardware revenue and units were up 4% year over year. Consumer hardware revenue was down 13% year over year with a 23% decline in printer units.
Services revenue declined 3% year over year with an 11.0% operating margin. Technology Services revenue was down 1% year over year, Application and Business Services revenue was flat, and IT Outsourcing revenue declined 6% year over year.
Enterprise Servers, Storage and Networking (ESSN) revenue declined 4% year over year with a 10.9% operating margin. Networking revenue was up 6%, Industry Standard Servers revenue was down 3%, Business Critical Systems revenue was down 16%, and Storage revenue was down 5% year over year.
Software revenue grew 18% year over year with an 18.0% operating margin, including the results of Autonomy. Software revenue was driven by 2% license growth, 16% support growth, and 65% growth in services.
HP Financial Services revenue was flat year over year as the 2% increase in net portfolio assets was offset by a 2% decrease in financing volume. The business delivered a 10.4% operating margin.
HP generated $2.8 billion in cash flow from operations in the third quarter. Inventory ended the quarter at $7.3 billion, with days of inventory up 1 day year over year to 29 days. Accounts receivable of $15.7 billion was down 4 days year over year to 48 days. Accounts payable ended the quarter at $12.6 billion, down 4 days from the prior-year period to 50 days. HP's dividend payment of $0.132 per share in the third quarter resulted in cash usage of $260 million. HP also utilized $365 million of cash during the quarter to repurchase approximately 16.5 million shares of common stock in the open market. HP exited the quarter with $9.9 billion in gross cash.

For fiscal 2012, HP now estimates non-GAAP diluted EPS to be in the range of $4.05 to $4.07, at the low end of the previously provided outlook.

Full year fiscal 2012 non-GAAP diluted EPS estimates exclude after-tax costs of approximately $6.30 per share, related primarily to the amortization and impairment of purchased intangible assets, the impairment of goodwill, 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 FY12 earnings conference call is accessible via an audio webcast at www.hp.com/investor/2012q3webcast.