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Feb 22, 2010
HP Reports First Quarter 2010 Results
First quarter net revenue of $31.2 billion, up 8%, or $2.4 billion, from a year earlier

First quarter GAAP operating profit up 20% to $3.0 billion; GAAP diluted earnings per share of $0.96, up 28% from $0.75 a year earlier

First quarter non-GAAP operating profit up 13% to $3.5 billion; non-GAAP diluted earnings per share of $1.10, up 18% from $0.93 a year earlier

Double-digit year-over-year growth in printers, industry standard servers and PCs

Cash flow from operations of $2.4 billion, up 114%, or $1.3 billion from the prior year

Raises full-year outlook

PALO ALTO, Calif., Feb 17, 2010 (BUSINESS WIRE) -- HP (NYSE: HPQ) today announced financial results for its first fiscal quarter ended Jan. 31, 2010, with net revenue of $31.2 billion, up 8% from a year earlier and up 5% when adjusted for the effects of currency.

In the first quarter, GAAP diluted earnings per share (EPS) was $0.96, up from $0.75 in the prior-year period. Non-GAAP EPS was $1.10, up from $0.93 in the prior-year period. Non-GAAP financial information excludes after-tax costs of approximately $0.14 per share and $0.18 per share in the first quarter of fiscal 2010 and 2009, respectively, related primarily to the amortization of purchased intangibles, restructuring charges and acquisition-related charges.

"HP is well-positioned to outperform the market," said Mark Hurd, HP chairman and chief executive officer. "The strength of our portfolio, leaner cost structure and accelerating market momentum give us the confidence to raise our full-year outlook."

     

Q1 FY10

   

Q1 FY09

   

Y/Y

Net revenue ($B)     $31.2     $28.8     8%
GAAP operating margin     9.6%     8.7%     0.9 pts
GAAP net earnings ($B)     $2.3     $1.9     25%
GAAP diluted EPS     $0.96     $0.75     28%
Non-GAAP operating margin     11.2%     10.8%     0.4 pts
Non-GAAP net earnings ($B)     $2.7     $2.3     17%
Non-GAAP diluted EPS     $1.10     $0.93     18%

Information about HP's use of non-GAAP financial information is provided under "Use of non-GAAP financial information" below. Unless otherwise noted, all growth rates included in the narrative below reflect year-over-year comparisons.

First quarter revenue was up 9% in the Americas to $13.6 billion. Revenue was up 1% in Europe, the Middle East and Africa and 26% in Asia Pacific to $12.1 billion and $5.4 billion, respectively. When adjusted for the effects of currency, revenue was up 7% in the Americas, down 1% in Europe, the Middle East and Africa and up 19% in Asia Pacific. Revenue from outside of the United States in the first quarter accounted for 65% of total HP revenue, with revenue in the BRIC countries (Brazil, Russia, India and China) increasing 41% over the prior-year period while accounting for 10% of total HP revenue.

"Solid performance across the business and disciplined execution on our cost initiatives contributed to strong growth in cash flow and EPS," said Cathie Lesjak, HP executive vice president and chief financial officer. "We will continue to invest for growth and leverage our scale and global position to take advantage of an improving demand environment."

Enterprise Storage and Servers

Enterprise Storage and Servers (ESS) reported total revenue of $4.4 billion, up 11%. Industry Standard Server revenue increased 27% while Storage revenue declined 3% with the midrange EVA product line down 5%. Business Critical Systems revenue declined 22%, while ESS blade revenue was up 24%. Operating profit was $552 million, or 12.6% of revenue, up from $406 million, or 10.3% of revenue, in the prior-year period.

Imaging and Printing Group

Imaging and Printing Group (IPG) revenue increased 4% to $6.2 billion. Supplies revenue was up 1%, up 4% in constant currency, while Commercial hardware revenue and Consumer hardware revenue increased 4% and 21%, respectively. Printer unit shipments increased 16%, with Commercial printer hardware units up 11% and Consumer printer hardware units up 18%. Operating profit was $1.1 billion, or 17.0% of revenue, versus $1.1 billion, or 18.5% of revenue, in the prior-year period.

Personal Systems Group

Personal Systems Group (PSG) posted a 26% increase in unit shipments and maintained the leading market share position in PCs worldwide. PSG revenue increased 20% to $10.6 billion. Notebook revenue for the quarter was up 25%, while Desktop revenue increased 16%. Commercial client revenue was up 16%, while Consumer client revenue increased 26%. Operating profit was $530 million, or 5.0% of revenue, up from $436 million, or 5.0% of revenue, in the prior-year period.

Services

Services revenue decreased 1% to $8.7 billion. Infrastructure Technology Outsourcing revenue increased 2% to $3.9 billion. Technology Services revenue decreased 2% to $2.4 billion. Application Services posted revenue of $1.5 billion and Business Process Outsourcing posted revenue of $734 million down 8% and 3%, respectively. Operating profit was $1.4 billion, or 15.8% of revenue, up from $1.1 billion, or 12.9% of revenue, in the prior-year period.

HP Software

HP Software revenue was flat at $878 million. Business Technology Optimization revenue decreased 1% and Other Software revenue increased 1%. Operating profit was $167 million, or 19.0% of revenue, up from $140 million, or 15.9% of revenue, in the prior-year period.

HP Financial Services

HP Financial Services (HPFS) revenue increased 13% to $719 million. Financing volume increased 30%, and net portfolio assets increased 23%. Operating margin was 9.3% of revenue, up from 6.4% in the prior-year period.

Asset management

HP generated $2.4 billion in cash flow from operations for the first quarter. Inventory ended the quarter at $6.6 billion, down 6 days. Accounts receivable of $14.5 billion was down 4 days. Accounts payable ended the quarter at $13.6 billion, up 3 days. HP's dividend payment of $0.08 per share in the first quarter resulted in cash usage of $189 million. HP also utilized $2.7 billion of cash during the quarter to repurchase approximately 54 million shares of common stock in the open market. HP exited the quarter with $13.7 billion in gross cash.

Outlook

For the second quarter of fiscal 2010, HP expects revenue of approximately $29.4 billion to $29.7 billion, GAAP diluted EPS in the range of $0.89 to $0.91, and non-GAAP diluted EPS in the range of $1.03 to $1.05. Second quarter fiscal 2010 non-GAAP diluted EPS estimates exclude after-tax costs of approximately $0.14 per share, related primarily to the amortization of purchased intangibles, restructuring charges and acquisition-related charges.

HP estimates full year fiscal 2010 revenue will be approximately $121.5 billion to $122.5 billion, up from its previous estimate of $118.0 billion to $119.0 billion. HP expects full year fiscal 2010 GAAP diluted EPS to be in the range of $3.79 to $3.86, up from its previous estimate of $3.65 to $3.75, and non-GAAP diluted EPS to be in the range of $4.37 to $4.44, up from its previous estimate of $4.25 to $4.35. Full year fiscal 2010 non-GAAP diluted EPS estimates exclude after-tax costs of approximately $0.58 per share, related primarily to the amortization of purchased intangibles, restructuring charges and acquisition-related charges.

These estimates for both the second quarter and full year fiscal 2010 do not reflect the potential impact of the proposed acquisition of 3Com Corporation that HP announced on Nov. 11, 2009.

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 http://www.hp.com/investor/home.

HP's Q1 FY10 earnings conference call is accessible via an audio webcast at http://www.hp.com/investor/q12010webcast.

About HP

HP creates new possibilities for technology to have a meaningful impact on people, businesses, governments and society. As the world's largest technology company, HP brings together a portfolio that spans printing, personal computing, software, services and IT infrastructure to solve customer problems. More information about HP is available at http://www.hp.com.

Use of non-GAAP financial information

To supplement HP's consolidated condensed financial statements presented on a GAAP basis, HP provides non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings, non-GAAP diluted earnings per share and gross cash. HP also provides forecasts of non-GAAP diluted earnings per share. A reconciliation of the adjustments to GAAP results for this quarter and prior periods is included in the tables below. In addition, an explanation of the ways in which HP management uses these non-GAAP measures to evaluate its business, the substance behind HP management'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 management compensates for those limitations, and the substantive reasons why HP 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 operating profit, operating margin, net earnings, diluted earnings per share, 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 revenue, margins, expenses, earnings, tax provisions, cash flows, benefit obligations, share repurchases, acquisition synergies, currency exchange rates or other financial items; any statements of the plans, strategies and objectives of management for future operations, including the execution of cost reduction programs and restructuring plans; any statements concerning the expected development, performance or market share 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 macroeconomic and geopolitical trends and events; execution and performance of contracts by HP and its suppliers, customers and partners; the challenge of managing asset levels, including inventory; the difficulty of aligning expense levels with revenue changes; assumptions related to pension and other post-retirement costs; expectations and assumptions relating to the execution and timing of cost reduction programs and 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, 2009 and HP's other filings with the Securities and Exchange Commission. As in prior periods, the financial information set forth in this release, including tax-related items, reflects estimates based on information available at this time. While HP believes these estimates to be meaningful, these amounts could differ materially from actual reported amounts in HP's Form 10-Q for the fiscal quarter ended January 31, 2010. In particular, determining HP's actual tax balances and provisions as of January 31, 2010 requires extensive internal and external review of tax data (including consolidating and reviewing the tax provisions of numerous domestic and foreign entities), which is being completed in the ordinary course of preparing HP's Form 10-Q. HP assumes no obligation and does not intend to update these forward-looking statements.

Note to editors: More news from HP, including links to RSS feeds, is available at http://www.hp.com/hpinfo/newsroom.

© 2010 Hewlett-Packard Development Company, L.P. The information contained herein is subject to change without notice. The only warranties for HP products and services are set forth inn the express warranty statements accompanying such products and services. Nothing herein should be constructed as constructing an additional warranty. HP shall not be liable for technical or editorial errors or omissions contained herein.

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(Unaudited)
(In millions except per share amounts)
           
           
           
  Three months ended
  January 31,
2010
  October 31,
2009
  January 31,
2009
           
Net revenue

$

31,177

    $ 30,777     $ 28,807  
           

Costs and expenses(a):

         
Cost of sales   24,062       23,475       22,073  
Research and development   681       704       732  
Selling, general and administrative   2,932       2,966       2,893  
Amortization of purchased intangible assets   330       400       412  
In-process research and development charges   -       1       6  
Restructuring charges   131       38       146  
Acquisition-related charges   38       60       48  
Total costs and expenses   28,174       27,644       26,310  
           
Earnings from operations   3,003       3,133       2,497  
           
Interest and other, net   (87 )     (132 )     (232 )
           
Earnings before taxes   2,916       3,001       2,265  
           
Provision for taxes(b)   593       589       409  
           
Net earnings $ 2,323     $ 2,412     $ 1,856  
           
Net earnings per share:          
Basic $ 0.99     $ 1.02     $ 0.77  
Diluted $ 0.96     $ 0.99     $ 0.75  
           
           
Cash dividends declared per share $ 0.16     $ -     $ 0.16  
           
Weighted-average shares used to compute net earnings per share:
Basic   2,358       2,366       2,410  
Diluted   2,427       2,433       2,464  
           
(a) Stock-based compensation expense was as follows:
Cost of sales $ 47     $ 37     $ 52  
Research and development   14       10       17  
Selling, general and administrative   119       86       85  
Acquisition-related charges   1       1       6  
Total costs and expenses $ 181     $ 134     $ 160  
           
(b) Tax benefit from stock-based compensation $ (58 )   $ (41 )   $ (48 )
 
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
ADJUSTMENTS TO GAAP NET EARNINGS, EARNINGS FROM OPERATIONS,
OPERATING MARGIN AND EARNINGS PER SHARE
(Unaudited)
(In millions except per share amounts)
                         
                         
   

Three
months
ended
January 31,
2010

 

Diluted
earnings
per share

 

Three
months
ended
October 31,
2009

 

Diluted
earnings
per share

 

Three
months
ended
January 31,
2009

 

Diluted
earnings
per share

                         
GAAP net earnings   $ 2,323     $ 0.96     $ 2,412     $ 0.99     $ 1,856     $ 0.75  
                         
Non-GAAP adjustments:                        
Amortization of purchased
intangible assets
    330       0.14      
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