HP Reports Fiscal 2014 Third Quarter Results

PALO ALTO, CA -- (Marketwired) -- Aug 20, 2014 -- HP (NYSE: HPQ)

Third quarter net revenue of $27.6 billion, up 1% from the prior-year period and up 1% on a constant currency basis
Third quarter non-GAAP diluted net earnings per share of $0.89, up 3% from the prior-year period, versus the previously provided outlook of $0.86 to $0.90 per share
Third quarter GAAP diluted net earnings per share of $0.52, down 27% from the prior-year period, versus the previously provided outlook of $0.59 to $0.63 per share
Third quarter cash flow from operations of $3.6 billion, up 36% from the prior-year period
Returned $881 million to shareholders in the form of share repurchases and dividends in the third quarter
Operating company net cash of $4.9 billion, a sequential improvement of $2.2 billion

HP fiscal 2014 third quarter financial performance

                                                                            
                                                  Q3        Q3              
                                                FY14      FY13         Y/Y  
GAAP net revenue ($B)                        $  27.6   $  27.2           1% 
GAAP operating margin                            5.3%      6.8%  (1.5 pts.) 
GAAP net earnings ($B)                       $   1.0   $   1.4         (29%)
GAAP diluted net earnings per share          $  0.52   $  0.71         (27%)
Non-GAAP operating margin                        8.5%      8.4%   0.1 pts.  
Non-GAAP net earnings ($B)                   $  1.70   $  1.68           1% 
Non-GAAP diluted net earnings per share      $  0.89   $  0.86           3% 
Cash flow from operations ($B)               $   3.6   $   2.7          36%

Information about HP's use of non-GAAP financial information is provided under "Use of non-GAAP financial information" below.

HP today announced financial results for its fiscal 2014 third quarter ended July 31, 2014.

Third quarter net revenue of $27.6 billion was up 1% from the prior-year period and up 1% on a constant currency basis.

Third quarter GAAP diluted net earnings per share (EPS) was $0.52, down from $0.71 in the prior-year period and below its previously provided outlook of $0.59 to $0.63. Third quarter non-GAAP diluted net EPS was $0.89, up from $0.86 in the prior-year period and within its previously provided outlook of $0.86 to $0.90. Third quarter non-GAAP net earnings and non-GAAP diluted net EPS exclude after-tax costs of $713 million and $0.37 per diluted share, respectively, related to restructuring charges, the amortization of intangible assets and acquisition-related charges.

"Overall, I'm very pleased with the progress we've made," said Meg Whitman, chairman, president and chief executive officer, HP. "When I look at the way the business is performing, the pipeline of innovation and the daily feedback that I receive from our customers and partners, my confidence in the turnaround grows stronger."

Outlook
For the fiscal 2014 fourth quarter, HP estimates non-GAAP diluted net EPS to be in the range of $1.03 to $1.07 and GAAP diluted net EPS to be in the range of $0.83 to $0.87. Fiscal 2014 fourth quarter non-GAAP diluted net EPS estimates exclude after-tax costs of approximately $0.20 per share, related primarily to restructuring charges and the amortization of intangible assets.

For fiscal 2014, HP estimates non-GAAP diluted net EPS to be in the range of $3.70 to $3.74 and GAAP diluted net EPS to be in the range of $2.75 to $2.79. Fiscal 2014 non-GAAP diluted net EPS estimates exclude after-tax costs of approximately $0.95 per share, related primarily to restructuring charges and the amortization of intangible assets.

Asset management
HP generated $3.6 billion in cash flow from operations in the third quarter, up 36% from the prior-year period. Inventory ended the quarter at $6.2 billion, down 1 day year over year to 27 days. Accounts receivable ended the quarter at $14.2 billion, down 1 day year over year to 46 days. Accounts payable ended the quarter at $15.1 billion, up 8 days year over year to 65 days. HP's dividend payment of $0.16 per share in the third quarter resulted in cash usage of $299 million. HP also utilized $582 million of cash during the quarter to repurchase approximately 17.5 million shares of common stock in the open market. HP exited the quarter with $14.8 billion in gross cash.

Fiscal 2014 third quarter segment results

Personal Systems revenue was up 12% year over year with a 4.0% operating margin. Commercial revenue increased 14% and Consumer revenue increased 8%. Total units were up 13% with Desktops units up 9% and Notebooks units up 18%.
Printing revenue was down 4% year over year with an 18.4% operating margin. Total hardware units were down 5% with Commercial hardware units down 2% and Consumer hardware units down 6%. Supplies revenue was down 5%.
Enterprise Group revenue was up 2% year over year with a 14.0% operating margin. Industry Standard Servers revenue was up 9%, Storage revenue was down 4%, Business Critical Systems revenue was down 18%, Networking revenue was up 4% and Technology Services revenue was down 3%.
Enterprise Services revenue was down 6% year over year with a 4.1% operating margin. Application and Business Services revenue was down 4% and Infrastructure Technology Outsourcing revenue declined 8%.
Software revenue was down 5% year over year with a 21.2% operating margin. License revenue was down 16%, support revenue was flat, professional services revenue was down 3% and software-as-a-service (SaaS) revenue was up 8%.
HP Financial Services revenue was down 3% year over year with a 1% increase in net portfolio assets and a 14% increase in financing volume. The business delivered an operating margin of 9.2%.

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