Net revenue and EPS results
HP Inc. (“HP”) announced fiscal 2019 third quarter net revenue of $14.6 billion, up 0.1% (up 2% in constant currency) from the prior-year period.
Third quarter GAAP diluted net EPS was $0.78, up from $0.54 in the prior-year period and above the previously provided outlook of $0.49 to $0.52. Third quarter non-GAAP diluted net EPS was $0.58, up from $0.52 in the prior-year period and above the previously provided outlook of $0.53 to $0.56. Third quarter non-GAAP net earnings and non-GAAP diluted net EPS exclude after-tax adjustments of $299 million, or $0.20 per diluted share, related to restructuring and other charges, acquisition-related charges (credits), amortization of intangible assets, non-operating retirement-related (credits)/charges, and tax adjustments.
“We continued to deliver strong free cash flow and non-GAAP EPS growth, while raising our non-GAAP EPS outlook,” said Dion Weisler, HP’s President and CEO. “We are delivering industry leading innovation across our portfolio, and I am confident we are taking the right actions to position HP for the future.”
Asset management
HP’s net cash provided by operating activities in the third quarter of fiscal 2019 was $2.3 billion. Accounts receivable ended the quarter at $5.3 billion, down 2-days quarter over quarter to 33 days. Inventory ended the quarter at $5.7 billion, up 1-day quarter over quarter to 44 days. Accounts payable ended the quarter at $14.6 billion, up 3 days quarter over quarter to 113 days.
HP generated $2.2 billion of free cash flow in the third quarter. Free cash flow includes net cash provided by operating activities of $2.3 billion less net investments in and proceeds from the sale of property, plant and equipment of $172 million.
HP’s dividend payment of $0.1602 per share in the third quarter resulted in cash usage of $0.2 billion. HP also utilized $0.5 billion of cash during the quarter to repurchase approximately 26.5 million shares of common stock in the open market. As a result, HP returned 36% of its third quarter free cash flow to shareholders. HP exited the quarter with $4.9 billion in gross cash, which includes cash and cash equivalents.
Fiscal 2019 third quarter segment results
- Personal Systems net revenue was up 3% year over year (up 6% in constant currency) with a 5.6% operating margin. Commercial net revenue increased 10% and Consumer net revenue decreased 11%. Total units were up 5% with Notebooks units up 2% and Desktops units up 11%.
- Printing net revenue was down 5% year over year (down 5% in constant currency) with a 15.6% operating margin. Total hardware units were down 9% with Commercial hardware units down 4% and Consumer hardware units down 10%. Supplies net revenue was down 7% (down 7% in constant currency).
Outlook
For the fiscal 2019 fourth quarter, HP estimates GAAP diluted net EPS to be in the range of $0.51 to $0.55 and non-GAAP diluted net EPS to be in the range of $0.55 to $0.59. Fiscal 2019 fourth quarter non-GAAP diluted net EPS estimates exclude $0.04 per diluted share, primarily related to restructuring and other charges, acquisition-related charges, defined benefit plan settlement charges, amortization of intangible assets, non-operating retirement-related (credits)/charges, tax adjustments and the related tax impact on these items.
For fiscal 2019, HP is updating its estimate of GAAP diluted net EPS to be in the range of $2.31 to $2.35 and revises its previous estimate of non-GAAP diluted net EPS to be in the range of $2.18 to $2.22. Fiscal 2019 non-GAAP diluted net EPS estimates exclude $0.13 per diluted share, primarily related to restructuring and other charges, acquisition-related charges, defined benefit plan settlement charges, amortization of intangible assets, non-operating retirement-related (credits)/charges, tax adjustments and the related tax impact on these items.
More information on HP's earnings, including additional financial analysis and an earnings overview presentation, is available on HP's Investor Relations website at investor.hp.com.
HP's FY19 Q3 earnings conference call is accessible via an audio webcast at www.hp.com/investor/2019Q3Webcast.
About HP Inc.
HP Inc. (NYSE: HPQ) creates technology that makes life better for everyone, everywhere. Through our product and service portfolio of personal systems, printers and 3D printing solutions, we engineer experiences that amaze. More information about HP Inc. is available at 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, non-GAAP total operating expense, non-GAAP operating profit, non-GAAP operating margin, non-GAAP tax rate, non-GAAP net earnings, non-GAAP diluted net EPS, free cash flow, gross cash and net cash (debt) financial measures. HP also provides forecasts of non-GAAP diluted net EPS and free cash flow. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are 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 expense, operating profit, operating margin, tax rate, net earnings, diluted net EPS, cash provided by operating activities 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 and its consolidated subsidiaries 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 EPS, cash flows, benefit plan funding, deferred taxes, share repurchases, foreign currency exchange rates or other financial items; any projections of the amount, timing or impact of cost savings or restructuring and other charges; any statements of the plans, strategies and objectives of management for future operations, including, but not limited to, our sustainability goals, our go-to-market strategy, the execution of restructuring plans and any resulting cost savings, net 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, including with respect to the timing and expected benefits of acquisitions and other business combination and investment transactions; 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 and innovating HP’s strategy and business model changes; successfully innovating, developing and executing HP’s go-to-market strategy, including online, omnichannel and contractual sales, in an evolving distribution and reseller landscape; successfully competing and maintaining the value proposition of HP’s products, including supplies; the impact of macroeconomic and geopolitical trends and events; the need to manage third-party suppliers, manage HP’s global, multi-tier distribution network, prevent misuse of discounts by HP’s channel partners, adapt to new or changing marketplaces and effectively deliver HP’s services; challenges to HP’s ability to accurately forecast inventories, demand and pricing, which may be due to HP’s multi-tiered channel, sales of HP’s products to unauthorized resellers or unauthorized resale of HP’s products; 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 impact of changes in tax laws, including uncertainties related to the interpretation and application of the Tax Cuts and Jobs Act of 2017 on HP's tax obligations and effective tax rate; 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, 2018, and HP’s other filings with the Securities and Exchange Commission.
