HP CFO Cathie Lesjak on Q1 FY14 Earnings

Overall, Q1 was a good start to FY14 as some of the fundamental improvements we have been driving are clearly beginning to take hold.  We saw revenue growth in Personal Systems and the Enterprise Group, and at the total company level, on a constant currency basis, we achieved revenue growth for the first time since the second quarter of 2011. Our focus on rebuilding our balance sheet has resulted in an improvement of our operating company net cash position by more than $6 billion since the first quarter of 2013.  We have reignited innovation at HP, and we have strengthened our relationships with customers and channel partners.  And, our global workforce is fully aligned behind a common vision for the company – delivering solutions for the new style of IT. 

But we still have work to do to improve the consistency of our performance and the profitability across some of our businesses, and we continue to face a highly competitive market.  So we remain focused on improving our go-to-market and cost structure.

In the first quarter fiscal 2014, we delivered:

  • Revenue of $28.2 billion, down 0.7% year-over-year but up 0.3% in constant currency
  • Non-GAAP diluted net earnings per share of $0.90 
  • GAAP diluted net earnings per share of $0.741
  • Operating cash flow of $3.0 billion 

We also returned a combined $843 million to shareholders in the quarter in the form of dividends and share repurchases. As a result of our focus on generating operating cash flow, the company exited the quarter with an operating company net cash position of $1.7 billion. 

By business, Printing continued to perform well, with solid hardware unit growth for the third consecutive quarter, and good profitability, as we continue to push our print strategies forward.  Revenue was $5.8 billion, down 2% year-over-year and unit shipments grew 5%.  We’re seeing positive traction with Ink in the Office and Ink Advantage.  In laser, we gained share and are continuing to grow in Multi Function printers and Managed Services. Graphics remains a bright spot, with another solid performance in Indigo. 

We’re pleased with our performance in Personal Systems, where we delivered strong revenue performance. Overall, the PC market contraction is slowing and we see signs of stabilization, particularly in the commercial segment. Revenue was $8.5 billion, up 4% over the prior year, our first quarter of growth in 7 quarters.  Growth was driven by strong performance in Commercial. 

In the Enterprise Group, we saw revenue growth of 1% to $7 billion, and expect calendar fourth quarter share gains across all our hardware segments.  Results in the first quarter were led by revenue growth in ISS and Networking, partially offset by a revenue decline in TS.  We saw stable performance in Storage, where we continue to manage the transition from traditional to converged storage.

In Enterprise Services, delayed key account revenue run-off occurred largely as we expected, and resulted in revenue of $5.6 billion, down 7% year over year, and a 1% operating margin. In the first quarter, we did see encouraging bookings growth in Strategic Enterprise Services, but there remains further opportunity for us to improve our success in winning new large customers, and securing add-on revenue from existing accounts. 

In Software, revenue was down 4% year-over-year to $916 million, but we grew in key areas of the portfolio including Security, Cloud and Big Data.  Weakness in our traditional IT management business was partially offset by double digit growth in Cloud, Vertica and Autonomy’s IDOL license revenue. 

Outlook 

Looking ahead to Q2, the market and competitive environment continues to be challenging.  While there are signs of recovery in some geographic regions, many areas across the globe are soft. 

With that context, we expect: 

  • Fiscal 2014 Q2 non-GAAP diluted net earnings per share to be in the range of $0.85 to $0.89 and GAAP diluted net earnings per share to be in the range of $0.62 to $0.66.  
  • Fiscal 2014 non-GAAP diluted net earnings per share to be in the range of $3.60 to $3.75, and GAAP diluted net earnings per share to be in the range of $2.85 to $3.00 

1. All non-GAAP numbers have been adjusted to exclude certain items. A reconciliation of specific adjustments to GAAP results for the current and prior periods is included on slide 17 in the GAAP to non-GAAP slides that appear as part of the supplemental slides of the Q114 earnings presentation available at http://bit.ly/1fkSCrd. A description of HP’s use of non-GAAP information is provided on slide 3 of that presentation under “Use of non-GAAP financial information.”
2. Second quarter fiscal 2014 non-GAAP net diluted EPS estimates exclude after-tax costs of approximately $0.23 per share, related primarily to amortization of intangible assets and restructuring charges.2
3. Full year fiscal 2014 non-GAAP net diluted EPS estimates exclude after-tax costs of approximately $0.75 per share, related primarily to amortization of intangible assets and restructuring charges.3