Asset management
HP's net cash provided by operating activities in the second quarter was $1.6 billion. Accounts receivable ended the quarter at $3.9 billion, unchanged quarter over quarter at 30 days. Inventory ended the quarter at $3.5 billion, down 3 days quarter over quarter to 34 days. Accounts payable ended the quarter at $9.1 billion, up 6 days quarter over quarter to 88 days. HP's dividend payment of $0.124 per share in the second quarter resulted in cash usage of $0.2 billion. HP also utilized $0.3 billion of cash during the quarter to repurchase approximately 28.7 million shares of common stock in the open market. HP exited the quarter with $4.6 billion in gross cash, which includes cash and cash equivalents, short-term investments, and certain liquid long-term investments.
Fiscal 2016 second quarter segment results
- Personal Systems net revenue was down 10% year over year (down 5% in constant currency) with a 3.5% operating margin. Commercial net revenue decreased 7% and Consumer net revenue decreased 16%. Total units were down 9% with Notebooks units down 6% and Desktops units down 10%.
- Printing net revenue was down 16% year over year (down 10% in constant currency) with a 17.3% operating margin. Total hardware units were down 16% with Commercial hardware units down 12% and Consumer hardware units down 18%. Supplies revenue was down 16% (down 10% in constant currency).
Outlook
For the fiscal 2016 third quarter, HP estimates non-GAAP diluted net EPS from continuing operations to be in the range of $0.37 to $0.40 and GAAP diluted net EPS from continuing operations to be in the range of $0.34 to $0.37. Fiscal 2016 third quarter non-GAAP diluted net EPS from continuing operations estimates exclude $0.03 per diluted share, related to restructuring charges, the amortization of intangible assets, non-operating retirement-related credits and tax indemnification amounts.
For fiscal 2016, HP estimates non-GAAP diluted net EPS from continuing operations to be in the range of $1.59 to $1.65 and GAAP diluted net EPS from continuing operations to be in the range of $1.52 to $1.58. Fiscal 2016 non-GAAP diluted net EPS from continuing operations estimates exclude $0.07 per diluted share, related to restructuring charges, the amortization of intangible assets, non-operating retirement-related credits and tax indemnification amounts.
More information on HP's 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 FY16 Q2 earnings conference call is accessible via an audio webcast at www.hp.com/investor/2016Q2Webcast.
About HP Inc.
HP Inc. creates technology that makes life better for everyone, everywhere. Through our portfolio of printers, PCs, mobile devices, solutions, and services, we engineer experiences that amaze. More information about HP Inc. is available at
http://www.hp.com.
Use of non-GAAP financial information
To supplement HP's consolidated condensed financial statements presented on a generally accepted accounting principles (GAAP) basis, HP provides net revenue on a constant currency basis, as well as non-GAAP operating margin from continuing operations, non-GAAP net earnings from continuing operations, non-GAAP diluted net earnings per share from continuing operations and gross cash financial measures. HP also provides forecasts of non-GAAP diluted net earnings per share from continuing operations. A reconciliation of the adjustments to GAAP results for this quarter and prior periods is included in the tables below or elsewhere in the materials accompanying this news release. In addition, an explanation of the ways in which HP's management uses these non-GAAP measures to evaluate its business, the substance behind HP'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's management compensates for those limitations, and the substantive reasons why HP's 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 net revenue, operating profit, operating margin, net earnings from continuing operations, diluted net earnings per share from continuing operations or cash and cash equivalents 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 net revenue, margins, expenses, effective tax rates, net earnings, net earnings per share, cash flows, benefit plan funding, deferred tax assets, share repurchases, currency exchange rates or other financial items; any projections of the amount, timing or impact of cost savings or restructuring charges; any statements of the plans, strategies and objectives of management for future operations, including the execution of the restructuring plans and any resulting cost savings, revenue or profitability improvements; any statements concerning the expected development, performance, market share or competitive performance 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 need to address the many challenges facing HP's businesses; the competitive pressures faced by HP's businesses; risks associated with executing HP's strategy; the impact of macroeconomic and geopolitical trends and events; the need to manage third-party suppliers and the distribution of HP's products and the delivery of HP's services effectively; the protection of HP's intellectual property assets, including intellectual property licensed from third parties; risks associated with HP's international operations; 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, clients and partners; the hiring and retention of key employees; integration and other risks associated with business combination and investment transactions; the results of the restructuring plans, including estimates and assumptions related to the cost (including any possible disruption of HP's business) and the anticipated benefits of the restructuring 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, 2015, and HP's other filings with the Securities and Exchange Commission.
As in prior periods, the financial information set forth in this release, including any tax-related items, reflects estimates based on information available at this time. While HP believes these estimates to be reasonable, these amounts could differ materially from reported amounts in HP's Quarterly Report on Form 10-Q for the fiscal quarter ended April 30, 2016. HP assumes no obligation and does not intend to update these forward-looking statements. HP's Investor Relations website at www.hp.com/investor/home contains a significant amount of information about HP, including financial and other information for investors. HP encourages investors to visit its website from time to time, as information is updated and new information is posted.
HP INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(Unaudited)
(In millions, except per share amounts)
Three months ended
-------------------------------------
April 30, January 31, April 30,
2016 2016 2015
----------- ----------- -----------
Net revenue $ 11,588 $ 12,246 $ 12,977
Costs and expenses:
Cost of revenue 9,338 9,961 10,415
Research and development 301 292 305
Selling, general and administrative 1,002 1,037 1,228
Restructuring charges 100 20 7
Amortization of intangible assets 6 8 25
----------- ----------- -----------
Total costs and expenses 10,747 11,318 11,980
----------- ----------- -----------
Earnings from continuing operations 841 928 997
Interest and other, net (5) (94) (78)
----------- ----------- -----------
Earnings from continuing operations
before taxes 836 834 919
Provision for taxes (176) (184) (186)
----------- ----------- -----------
Net earnings from continuing
operations 660 650 733
Net (loss) earnings from discontinued
operations (31) (58) 278
----------- ----------- -----------
Net earnings $ 629 $ 592 $ 1,011
=========== =========== ===========
Net earnings (loss) per share:
Basic
Continuing operations $ 0.38 $ 0.37 $ 0.41
Discontinued operations (0.01) (0.04) 0.15
----------- ----------- -----------
Total basic net earnings per
share $ 0.37 $ 0.33 $ 0.56
=========== =========== ===========
Diluted
Continuing operations $ 0.38 $ 0.36 $ 0.40
Discontinued operations (0.02) (0.03) 0.15
----------- ----------- -----------
Total diluted net earnings per
share $ 0.36 $ 0.33 $ 0.55
=========== =========== ===========
Cash dividends declared per share $ - $ 0.25 $ -
Weighted-average shares used to
compute net earnings per share:
Basic 1,720 1,776 1,814
Diluted 1,731 1,785 1,836
HP INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(Unaudited)
(In millions, except per share amounts)
Six months ended April 30,
--------------------------
2016 2015
------------ ------------
Net revenue $ 23,834 $ 26,835
Costs and expenses:
Cost of revenue 19,299 21,588
Research and development 593 609
Selling, general and administrative 2,039 2,450
Restructuring charges 120 21
Amortization of intangible assets 14 52
------------ ------------
Total costs and expenses 22,065 24,720
------------ ------------
Earnings from continuing operations 1,769 2,115
Interest and other, net (99) (199)
------------ ------------
Earnings from continuing operations before taxes 1,670 1,916
Provision for taxes (360) (413)
------------ ------------
Net earnings from continuing operations 1,310 1,503
Net (loss) earnings from discontinued operations (89) 874
------------ ------------
Net earnings $ 1,221 $ 2,377
============ ============
Net earnings (loss) per share:
Basic
Continuing operations $ 0.75 $ 0.82
Discontinued operations (0.05) 0.48
------------ ------------
Total basic net earnings per share $ 0.70 $ 1.30
============ ============
Diluted
Continuing operations $ 0.75 $ 0.81
Discontinued operations (0.06) 0.48
------------ ------------
Total diluted net earnings per share $ 0.69 $ 1.29
============ ============
Cash dividends declared per share $ 0.25 $ 0.32
Weighted-average shares used to compute net
earnings per share:
Basic 1,748 1,824
Diluted 1,758 1,848
HP INC. AND SUBSIDIARIES
ADJUSTMENTS TO GAAP NET EARNINGS, EARNINGS FROM OPERATIONS,
OPERATING MARGIN AND DILUTED NET EARNINGS PER SHARE
(Unaudited)
(In millions, except per share amounts)
Three Three Three
months Diluted months Diluted months Diluted
ended net ended net ended net
April earnings January earnings April earnings
30, per 31, per 30, per
2016 share 2016 share 2015 share
------- -------- ------- -------- ------- --------
GAAP net earnings
from continuing
operations $ 660 $ 0.38 $ 650 $ 0.36 $ 733 $ 0.40
Non-GAAP
adjustments:
Restructuring
charges 100 0.06 20 0.01 7 -
Amortization of
intangible
assets 6 - 8 0.01 25 0.01
Non-operating
retirement-
related credits (40) (0.02) (40) (0.02) (58) (0.03)
Adjustments for
taxes (16) (0.01) 7 - 13 0.01
Tax
indemnification
credits (8) - - - - -
------- -------- ------- -------- ------- --------
Non-GAAP net
earnings $ 702 $ 0.41 $ 645 $ 0.36 $ 720 $ 0.39
======= ======== ======= ======== ======= ========
GAAP earnings
from continuing
operations $ 841 $ 928 $ 997
Non-GAAP
adjustments:
Restructuring
charges 100 20 7
Amortization of
intangible
assets 6 8 25
Non-GAAP earnings $ 907 $ 916 $ 971
======= ======= =======
GAAP operating
margin from
continuing
operations 7% 8% 8%
Non-GAAP
adjustments 1% (1%) (1%)
------- ------- -------
Non-GAAP
operating margin 8% 7% 7%
======= ======= =======
HP INC. AND SUBSIDIARIES
ADJUSTMENTS TO GAAP NET EARNINGS, EARNINGS FROM OPERATIONS,
OPERATING MARGIN AND DILUTED NET EARNINGS PER SHARE
(Unaudited)
(In millions, except per share amounts)
Six months Diluted Six months Diluted
ended net ended net
April 30, earnings April 30, earnings
2016 per share 2015 per share
----------- ----------- ----------- -----------
GAAP net earnings from
continuing operations $ 1,310 $ 0.75 $ 1,503 $ 0.81
Non-GAAP adjustments:
Restructuring charges 120 0.07 21 0.01
Amortization of
intangible assets 14 0.01 52 0.03
Non-operating
retirement-related
credits (80) (0.05) (116) (0.06)
Adjustments for taxes (9) (0.01) 25 0.01
Tax indemnification
credits (8) - - -
----------- ----------- ----------- -----------
Non-GAAP net earnings $ 1,347 $ 0.77 $ 1,485 $ 0.80
=========== =========== =========== ===========
GAAP earnings from
continuing operations $ 1,769 $ 2,115
Non-GAAP adjustments:
Restructuring charges 120 21
Amortization of
intangible assets 14 52
Non-operating
retirement-related
credits (80) (116)
----------- -----------
Non-GAAP earnings $ 1,823 $ 2,072
=========== ===========
GAAP operating margin
from continuing
operations 7% 8%
Non-GAAP adjustments 1% 0%
----------- -----------
Non-GAAP operating margin 8% 8%
=========== ===========
HP INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(In millions)
As of
------------------------
April 30, October 31,
2016 2015
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 4,636 $ 7,584
Accounts receivable 3,884 4,825
Inventory 3,547 4,288
Other current assets 3,318 4,498
Current assets of discontinued operations - 30,592
----------- -----------
Total current assets 15,385 51,787
----------- -----------
Property, plant and equipment 1,572 1,492
Goodwill 5,672 5,680
Other non-current assets 2,894 1,592
Non-current assets of discontinued operations - 46,331
----------- -----------
Total assets $ 25,523 $ 106,882
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and short-term borrowings $ 64 $ 2,194
Accounts payable 9,099 10,194
Employee compensation and benefits 700 747
Taxes on earnings 136 243
Deferred revenue 885 1,051
Other accrued liabilities 5,978 6,241
Current liabilities of discontinued operations - 21,521
----------- -----------
Total current liabilities 16,862 42,191
----------- -----------
Long-term debt 6,708 6,677
Other non-current liabilities 6,739 7,414
Non-current liabilities of discontinued operations - 22,449
Stockholders' (deficit) equity:
HP stockholders' (deficit) equity (4,786) 27,768
Non-controlling interests of discontinued
operations - 383
----------- -----------
Total stockholders' (deficit) equity (4,786) 28,151
----------- -----------
Total liabilities and stockholders' equity $ 25,523 $ 106,882
=========== ===========
HP INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In millions)
Three months ended April 30,
----------------------------
2016 2015(a)
------------- -------------
Cash flows from operating activities:
Net earnings $ 629 $ 1,011
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 85 1,003
Stock-based compensation expense 40 129
Provision for doubtful accounts and
inventory - 102
Restructuring charges 100 255
Deferred taxes on earnings 74 173
Excess tax benefit from stock-based
compensation (1) (9)
Other, net (77) 159
Changes in operating assets and liabilities
(net of acquisitions):
Accounts receivable 190 (46)
Financing receivables - 23
Inventory 520 277
Accounts payable 41 (40)
Taxes on earnings 29 (208)
Restructuring (37) (220)
Other assets and liabilities (18) (1,145)
------------- -------------
Net cash provided by operating activities 1,575 1,464
------------- -------------
Cash flows from investing activities:
Investment in property, plant and equipment (86) (779)
Proceeds from sale of property, plant and
equipment - 81
Purchases of available-for-sale securities
and other investments (122) (58)
Maturities and sales of available-for-sale
securities and other investments 3 93
Proceeds from business divestiture 61 -
Payments made in connection with business
acquisitions - (138)
------------- -------------
Net cash used in investing activities (144) (801)
------------- -------------
Cash flows from financing activities:
Short-term borrowings with original
maturities less than 90 days, net 13 1,781
Proceeds from debt, net of issuance costs - 1,288
Payment of debt (3) (984)
Settlement of cash flow hedge 17 -
Issuance of common stock under employee stock
plans 7 42
Repurchase of common stock (305) (659)
Excess tax benefit from stock-based
compensation 1 9
Cash dividends paid (213) (291)
------------- -------------
Net cash (used in) provided by financing
activities (483) 1,186
------------- -------------
Increase in cash and cash equivalents 948 1,849
Cash and cash equivalents at beginning of
period 3,688 12,919
------------- -------------
Cash and cash equivalents at end of period $ 4,636 $ 14,768
============= =============
(a) The consolidated condensed statement of cash flows for the three months
ended April 30, 2015 represents the combined cash flows of HP prior to
separation, as previously filed, and has not been adjusted to reflect
the effect of the separation of Hewlett Packard Enterprise Company.
