“In the second quarter, we saw continued strength in the enterprise with combined revenue from our commercial businesses up 8% year over year,” said Cathie Lesjak, HP executive vice president and chief financial officer. “We again expanded our margins and increased both earnings per share and cash flow from operations double digits year over year.”

Trends and regional performance

Results were largely driven by performance in the commercial sector as businesses continued to spend on technology. HP experienced uneven consumer performance across its product categories during the quarter with continued softness in consumer PCs across all geographies.

Second quarter revenue was up 2% year over year in the Americas to $13.8 billion. Revenue was down 1% in Europe, the Middle East and Africa and up 10% in Asia Pacific to $11.7 billion and $6.1 billion, respectively. When adjusted for the effects of currency, revenue was up 1% in the Americas, flat in Europe, the Middle East and Africa and up 4% in Asia Pacific. Revenue from outside of the United States in the second quarter accounted for 66% of total HP revenue. HP saw accelerated growth in BRIC countries (Brazil, Russia, India and China) with revenue increasing 19% while accounting for 12% of total HP revenue.

Business group highlights

• Personal Systems Group (PSG) revenue declined 5% year over year with a 5.7% operating margin. PSG remains the PC market leader in terms of units, revenue and profit share. PSG maintained its market leadership position in Commercial PCs, with Commercial Client revenue growth of 13% outpacing Consumer Client revenue decline of 23% in the quarter.
• Imaging and Printing Group (IPG) revenue grew 5% year over year with a 17.0% operating margin. IPG continued to deliver strong performance across the business with share gains in all printing categories and 41% year-over-year growth in commercial printer hardware units. IPG continued to drive innovation and momentum with the new ePrint platform, graphic arts and other commercial print solutions.
• Services revenue grew 2% year over year with a 15.2% operating margin. To improve long-term performance, HP is accelerating alignment of the services business with the company’s overall strategy, including making investments to drive more value-added solutions and migration to the cloud.
• Enterprise Servers, Storage and Networking (ESSN) revenue grew 15% year over year with a 13.8% operating margin. ESSN delivered a solid quarter with HP’s innovative converged infrastructure products winning in the data center. HP gained momentum in cloud with strong interest in and the successful launch of HP CloudSystem.
• HP Software revenue grew 17% year over year with a 20.2% operating margin. HP Software revenue was driven by strong growth in licenses and services of 29% and 22%, respectively.
• HP Financial Services revenue grew 17% year over year with a 9.4% operating margin. Financial Services continued to see its strong performance driven by both double-digit growth in lease volume and a healthy improvement in portfolio assets.

Asset management

HP generated $4.0 billion in cash flow from operations in the second quarter. Inventory ended the quarter at $6.8 billion, with days of inventory up 1 day year over year at 26 days. Accounts receivable of $18.6 billion was up 10 days year over year at 53 days. Accounts payable ended the quarter at $14.2 billion, up 3 days from the prior-year period. HP’s dividend payment in the second quarter resulted in cash usage of $182 million. HP also utilized $2.7 billion of cash during the quarter to repurchase approximately 64 million shares of common stock in the open market. HP exited the quarter with $12.8 billion in gross cash.

Outlook

HP’s revised outlook for the third quarter and the full year fiscal 2011 reflects an expected near-term impact from the Japan earthquake and related events, continued softness in sales of consumer PCs, and reduced operating profit expectations for Services.

For the third quarter of fiscal 2011, HP estimates revenue of approximately $31.1 billion to $31.3 billion, GAAP diluted EPS of approximately $0.90, and non-GAAP diluted EPS of approximately $1.08.

Third quarter fiscal 2011 non-GAAP diluted EPS estimates exclude after-tax costs of approximately $0.18 per share, related primarily to the amortization of purchased intangibles, restructuring charges and acquisition-related charges.

HP expects full year fiscal 2011 revenue in the range of $129 billion to $130 billion, GAAP diluted EPS of at least $4.27, and non-GAAP diluted EPS of at least $5.00.

Full year fiscal 2011 non-GAAP diluted EPS estimates exclude after-tax costs of approximately $0.73 per share, related primarily to the amortization of purchased intangibles, restructuring charges and acquisition-related charges.