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An audio webcast of the earnings conference call is available for a limited time.
- Third quarter revenue of $18.9 billion, up 9% year-over-year
- Non-GAAP operating profit of $846 million; Non-GAAP EPS $0.24
- GAAP operating profit of $657 million; GAAP EPS $0.19
- Revenue in Personal Systems grew 19% year-over-year; Imaging & Printing grew 8%; Enterprise Servers and Storage was down 5%; HP Services grew 12%; Software grew 17%
PALO ALTO, Calif., Aug. 12, 2004 - HP today reported preliminary financial results for its third fiscal quarter ended July 31, 2004, including third quarter revenue of $18.9 billion, an increase of 9% year-over-year.
Non-GAAP(1) operating profit was $846 million for the quarter. Non-GAAP diluted earnings per share (EPS) was $0.24 for the quarter, as compared to $0.23 in the prior year period. Non-GAAP diluted EPS and non-GAAP net earnings include a $142 million adjustment on an after-tax basis, or $0.05 per diluted share.
GAAP operating profit for the quarter was $657 million. GAAP diluted EPS was $0.19 per share, up 90% from $0.10 in the prior year period.
 |
q3 FY04 |
Y/Y Growth |
q3 FY03 |
| Revenue (billions) |
$18.9 |
9% |
$17.3 |
| Non-GAAP Operating Margin(1) |
4.5% |
|
4.9% |
| GAAP Operating Margin |
3.5% |
|
1.7% |
| Non-GAAP diluted EPS(1) |
$0.24 |
|
$0.23 |
| GAAP diluted EPS |
$0.19 |
90% |
$0.10 |
During the quarter, and on a year-over-year basis, revenue in the Americas grew 4% to $8.4 billion, Europe grew 14% to $7.5 billion, and Asia Pacific grew 11% to $3.0 billion. On a total company basis, and when adjusted for the effects of currency, third quarter revenue grew 5% year-over-year.
"Although we are satisfied with our performance in Personal Systems, Imaging and Printing, Software and Services, these solid results were overshadowed by unacceptable execution in Enterprise Servers and Storage. We therefore are making immediate management changes. We are also accelerating our margin improvement plans in this business. With these changes, we expect our server and storage business to return to profitability in the fourth quarter," said Carly Fiorina, HP chairman and chief executive officer.
Technology Solutions Group
The Technology Solutions Group consists of Enterprise Servers and Storage, Software and Services. The Group reported revenue of $7.0 billion, up 4% from the prior year period. Operating profit for the quarter totaled $56 million, down $209 million year-over-year.
Enterprise Servers and Storage
Enterprise Servers and Storage reported revenue of $3.4 billion, down 5% year-over-year. Industry Standard Server revenue grew 2% year-over-year. Business Critical Server revenue declined 8% year-over-year to $828 million with UNIX® revenue up 8%, Alpha down 32%, and NonStop down 25%. Total storage revenue totaled $709 million for the quarter, down 15% year-over-year. Online storage, including EVA and XP enterprise storage, declined 23% year-over-year. Nearline storage, which includes the tape library business, declined 16% year-over-year. Enterprise Servers and Storage reported a quarterly operating loss of $208 million, down from a loss of $20 million in the prior year period.
Several factors impacted performance this quarter. First, in the United States, a migration to a new order processing and supply chain system was more disruptive than planned. Second, in Europe, results were impacted by channel management issues including channel compensation, overly aggressive discounting and the transition to a centralized claims process. Third, HP's storage business was significantly below plan. Taken together, these issues accounted for this quarter's shortfall against consensus estimates. In addition, normal business acceleration toward quarter end was muted.
Software
Software reported record quarterly revenue of $223 million, an increase of 17% year-over-year. HP OpenCall revenue increased 8% over the prior year period. HP OpenView revenue increased 26% year-over-year. Software reported an operating loss of $45 million, as the company continues to make strategic investments that support the HP Adaptive Enterprise strategy.
HP Services
HP Services revenue grew 12% year-over-year to $3.5 billion reflecting continued strength in Managed Services, which grew 42% year-over-year. Customer Support grew 7% year-over-year and revenue in Consulting and Integration increased 6%. Operating profit was $309 million, a decrease of $26 million over the prior year and represented 8.9% of revenue.
Personal Systems
Personal Systems revenue totaled $5.9 billion, an increase of 19% year-over-year. Desktop revenue increased 26% year-over-year, while notebook revenue grew 12%. Commercial revenue grew 20% and Consumer revenue grew 19%. Personal Systems reported an operating profit of $25 million, up from a loss of $56 million in the prior year period.
Imaging and Printing
Imaging and Printing posted record third quarter revenue of $5.6 billion, up 8% year-over-year. During the quarter HP shipped almost 10 million printers, bringing total shipments to approximately 320 million units worldwide. Business hardware grew 8% year-over-year driven by strong unit shipments in color and mono lasers, business inkjets and MFPs. Home hardware decreased 5% with all-in-one unit sales growth offset by declining single-function printers and normal seasonality. Supplies grew 9% fueled by strong growth in color and monochrome laser supplies. Digital Imaging grew 11% as strong digital camera unit shipments helped offset an expected decline in scanner market. Operating profit of $837 million was also a third quarter record and represented 14.8% of revenue.
Financial Services
HP Financial Services reported revenues of $488 million, up 10% year-over-year, reflecting its highest quarterly revenue in five quarters. Operating profit was $42 million, an increase of $23 million from the prior year period, and represented 8.6% of revenue, the highest level in several years.
Asset Management
Inventory ended the quarter at $6.7 billion, up $472 million from the prior quarter and up $603 million year-over-year. Trade receivables declined $65 million from the prior quarter to $8.5 billion. HP's dividend payment of $0.08 per share in the third quarter resulted in a cash use of $244 million. In addition, HP repurchased $500 million of stock during the third quarter. HP exited the quarter with $14.4 billion in gross cash, which includes cash and cash equivalents of $14.0 billion and short- and certain long-term investments of $400 million.
Outlook
HP estimates fourth quarter revenue will be in the range of $21.0 billion to $21.5 billion, and fourth quarter non-GAAP earnings per share will be in the range of $0.35 to $0.39.
The non-GAAP EPS expectations assume after-tax exclusion for fourth quarter charges of approximately $0.05 per share from amortization of purchased intangible assets and acquisition-related charges.
More information on this quarter's earnings is available on HP's Investor Relations site at http://www.hp.com/hpinfo/investor/quarters/quarters.html.
Conference Call
HP Chairman and Chief Executive Officer Carly Fiorina and Executive Vice President and Chief Financial Officer Bob Wayman will host a conference call at 8 a.m. EDT (5 a.m. PDT) on Aug. 12 to review the quarterly results. It is recommended that attendees dial-in 10 minutes early to avoid registration delays.
- For U.S./Canada callers, the dial-in number is: +1 877 503 9347
- For international callers, the dial-in number is: +1 706 643 0002
No confirmation ID is required.
A digital recording will be available starting two hours after the completion of the conference call through Aug. 26. The replay number is +1 800 642 1687 for U.S./Canada callers and +1 706 645 9291 for international callers. The conference ID is 9416258.
The earnings call also is available via an audio Webcast, which is accessible at http://www.hp.com/hpinfo/investor/financials/quarters/2004/q3webcastpre.html.
A presentation also will be available for downloading on the HP Investor Relations Web site at http://www.hp.com/hpinfo/investor/quarters/quarters.html.
About HP
HP is a technology solutions provider to consumers, businesses and institutions globally. The company's offerings span IT infrastructure, personal computing and access devices, global services and imaging and printing. For the four fiscal quarters ended July 31, 2004, HP revenue totaled $78.4 billion. More information about HP (NYSE, Nasdaq: HPQ) is available at http://www.hp.com.
(1) All non-GAAP numbers have been adjusted to exclude certain items. A reconciliation of specific adjustments to GAAP results for this quarter and the prior period is included in the table below titled: "Non-GAAP Consolidated Condensed Statement of Earnings." A description of HP's use of non-GAAP information is provided under "Use of Non-GAAP Financial Information."
UNIX is a registered trademark of The Open Group. Intel and Itanium are registered trademarks of Intel Corp. or its subsidiaries in the United States and other countries.
Use of Non-GAAP Financial Information
To supplement the company's consolidated condensed financial statements presented on a GAAP basis, HP uses non-GAAP additional measures of operating results, net earnings and earnings per share adjusted to exclude certain costs, expenses, gains and losses it believes appropriate to enhance an overall understanding of HP's past financial performance and also its prospects for the future. These adjustments to HP's GAAP results are made with the intent of providing both management and investors a more complete understanding of the underlying operational results and trends and the company's marketplace performance. For example, the non-GAAP results are an indication of HP's baseline performance before gains, losses or other charges that are considered by management to be outside of the company's core business segment operational results. In addition, these adjusted non-GAAP results are among the primary indicators management uses as a basis for planning and forecasting of future periods. The presentation of this additional information is not meant to be considered in isolation or as a substitute for net earnings or diluted earnings per share prepared in accordance with generally accepted accounting principles in the United States.
Forward-Looking Statements
This press release contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they ever materialize or prove incorrect, could cause the results of HP and its consolidated subsidiaries to 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 earnings, revenue, margins, synergies or other financial items; any statements of the plans, strategies, and objectives of management for future operations, including the execution of restructuring plans and remediation of execution issues; any statements concerning the expected development, performance or rankings of products or services; any statements regarding future economic conditions or performance; 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; performance of contracts by suppliers, customers and partners; the development, performance and market acceptance of products and services; employee management issues; the challenge of managing asset levels, including inventory; the difficulty of aligning expense levels with revenue changes; the possibility that proposed contracts may not be entered into or ultimately performed on the terms currently contemplated or at all; information technology systems risks and other risks that are described from time to time in HP's Securities and Exchange Commission reports, including but not limited to the risks described in HP's Quarterly Report on Form 10-Q for the period ended April 30, 2004 and reports filed after HP's Annual Report on Form 10-K for the fiscal year ended Oct. 31, 2003. HP assumes no obligation to update these forward-looking statements.
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