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- Record quarterly revenue of $21.4 billion, up 8% year-over-year
- Non-GAAP operating profit of $1.5 billion, $0.41 earnings per share
- GAAP operating profit of $1.3 billion, $0.37 earnings per share
- Record revenues achieved in every business
- Imaging & Printing operating margin of 16.6%; Personal Systems operating margin of 1.2%; Enterprise Storage & Servers operating margin of 2.6%, up $315 million sequentially; HP Services operating margin of 10.0%; Software approaches breakeven
PALO ALTO, Calif., Nov. 16, 2004 - HP today reported financial results for its fourth fiscal quarter ended Oct. 31, 2004. Fourth quarter revenue increased 8% year-over-year to $21.4 billion.
Non-GAAP(1) operating profit was $1.5 billion, with non-GAAP diluted earnings per share (EPS) of $0.41, up 14% from $0.36 in the prior-year period. Non-GAAP diluted EPS and non-GAAP net earnings include a $136 million adjustment on an after-tax basis, or $0.05 per diluted share. GAAP operating profit for the quarter was $1.3 billion. GAAP diluted EPS was $0.37 per share, up 32% from $0.28 in the prior-year period.
|Non-GAAP Operating Margin(1)
|GAAP Operating Margin
|Non-GAAP diluted EPS(1)
|GAAP diluted EPS
"During the quarter, we delivered solid revenue growth of 8% year-over-year and achieved record revenues in every business and every region. This growth, combined with excellent expense management, drove an increase in non-GAAP earnings per share of 14% and GAAP earnings per share of 32%," said Carly Fiorina, HP chairman and chief executive officer.
"On a full year basis, total revenue grew 9% year-over-year, or $7 billion, to $80 billion. We generated a record $5 billion in profit and achieved our most balanced segment performance to date. We also continued to generate strong cash flow from operations, which enabled us to make strategic acquisitions in software and services and repurchase $3.3 billion of shares.
"In addition to executing on our current business, we strengthened our competitive position during the quarter with significant new offerings in storage, blade servers, imaging and printing and digital entertainment.
"In fiscal 2005, our focus is on disciplined execution, accelerating profitable growth and leveraging our unique portfolio," said Fiorina.
Technology Solutions Group
The Technology Solutions Group consists of Enterprise Storage and Servers, Software and HP Services. The group reported revenue of $8.0 billion, up 10% from the prior-year period. Operating profit for the quarter totaled $469 million, or 5.8% of revenue. Within this group:
Enterprise Storage and Servers
Enterprise Storage and Servers reported revenue of $4.1 billion, up 7% year-over-year, and 22% sequentially. Industry-standard server shipments increased 18% year-over-year, with revenue up 16% year-over-year and 23% sequentially. Revenue in Business Critical Systems grew 3% year-over-year and 26% sequentially. Within BCS, revenue in HP-UX increased 8% year-over-year, Alpha declined 27%, and NonStop revenue increased 13%. Networked storage revenue was down 9% year-over-year, but up 16% sequentially, as the company continued to add storage sales specialists and transition product offerings. Enterprise Storage and Servers reported a quarterly operating profit of $107 million, or 2.6% of revenue, up from a loss of $208 million in the third quarter.
HP Services revenue grew 13% year-over-year to a record $3.7 billion, reflecting continued strength in Managed Services, which grew 35% year-over-year. Customer Support grew 10% year-over-year and revenue in Consulting and Integration increased 4%. Operating profit was $367 million, representing 10.0% of revenue.
Software reported record quarterly revenue of $277 million, an increase of 25% year-over-year. HP OpenView revenue increased 30% year-over-year. HP OpenCall revenue was up 17%. Software reported an operating loss of $5 million, an improvement of $17 million from the prior-year period.
Personal Systems Group
Personal Systems Group revenue grew 9% year-over-year to a record $6.5 billion. Units grew 11% year-over-year, reflecting stable average selling prices. Desktop revenue increased 6% year-over-year, with notebook revenue up 12%. Commercial revenue grew 12% over the prior-year period, while Consumer revenue grew 4%. Personal Systems reported an operating profit of $78 million, or 1.2% of revenue, the strongest profit performance since 2000.
Imaging and Printing Group
Imaging and Printing posted record quarterly revenue of $6.5 billion, up 5% year-over-year. During the quarter, HP shipped 14 million printers, the strongest volume quarter ever. Business hardware revenue grew 6% year-over-year, driven by strength in color laser, multi-function printers and digital press. Home hardware revenue decreased 2% with All-in-One unit sales growth offset by declining single-function printers and price erosion. Supplies revenue grew 8%, fueled by strong growth in color printing. Operating profit of $1.1 billion was a quarterly record and represented 16.6% of revenue.
HP Financial Services reported revenue of $497 million, up 8% year-over-year, reflecting HP's highest quarterly revenue in six quarters. Finance volume, a leading indicator of future revenue, reached its highest level in two years and total portfolio assets also increased over the prior-year period. Operating profit was $19 million, or 3.8% of revenue, reflecting increased reserves related to certain aged receivables.
Inventory ended the quarter at $7.1 billion, up $326 million from the prior quarter and up $1.0 billion year-over-year. Trade receivables increased $1.8 billion from the prior quarter to $10.2 billion. HP's dividend payment of $0.08 per share in the fourth quarter resulted in a cash use of $240 million. In addition, HP repurchased $2.2 billion of stock during the fourth quarter. HP exited the quarter with $13.0 billion in gross cash, which includes cash and cash equivalents of $12.7 billion and short- and certain long-term investments of $0.3 billion.
HP estimates first half FY05 revenue will be in the range of $41.8 billion to $42.3 billion, and first half non-GAAP earnings per share will be in the range of $0.72 to $0.74.
The non-GAAP EPS expectations assume after-tax exclusion for charges of approximately $0.05 per share per quarter from amortization of purchased intangible assets and acquisition-related charges.
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/hpinfo/investor/.
HP is a technology solutions provider to consumers, businesses and institutions globally. The company's offerings span IT infrastructure, global services, business and home computing, and imaging and printing. For the four fiscal quarters ended Oct. 31, 2004, HP revenue totaled $79.9 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."
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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.
This press release contains forward-looking statements that involve risks and 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 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 July 31, 2004 and other reports filed after HP's Annual Report on Form 10-K for the fiscal year ended October 31, 2003. HP assumes no obligation and does not intend to update these forward-looking statements.