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HP revenue down across the board

25 May 2015

HP has announced its 2015 second quarter financial results, revealing revenue was down in all segments of the business as the company works to regain its footing following the decision to split in two. 

Net revenue for the quarter ended April 30 was $25.5 billion, down 7% from the prior-year period and down 2% on a constant currency basis.

GAAP diluted net earnings per share (EPS) was $0.55, also down from $0.66 in the prior-year period. This is below its previously provided outlook of $0.57 to $0.61.

Non-GAAP diluted net EPS was $0.87, down from $0.88 in the prior-year period. However, this is within its previously provided outlook of $0.84 to $0.88.

Non-GAAP net earnings and non-GAAP diluted net EPS exclude after-tax costs of $585 million and $0.32 per diluted share, respectively.

HP says this is related to separation costs, restructuring charges, the amortisation of intangible assets and acquisition-related charges.

Fiscal 2015 second quarter segment results

Personal Systems revenue was down 5% year over year with a 3.0% operating margin.

Commercial revenue decreased 7% and Consumer revenue decreased 2%. Total units were up 2% with Notebooks units up 19% and Desktops units down 14%.

Printing revenue was down 7% year over year with an 18.3% operating margin.

Total hardware units were down 4% with Commercial hardware units up 1% and Consumer hardware units down 6%. Supplies revenue was down 5%.

Enterprise Group revenue was down 1% year over year with a 14.5% operating margin.

Industry Standard Servers revenue was up 11%, Storage revenue was down 8%, Business Critical Systems revenue was down 15%, Networking revenue was down 16% and Technology Services revenue was down 8%.  Additionally, HP closed its acquisition of Aruba in May.

Enterprise Services revenue was down 16% year over year with a 4.0% operating margin. 

Infrastructure Technology Outsourcing revenue was down 20%, and Application and Business Services revenue declined 8%.

Software revenue was down 8% year over year with a 17.9% operating margin.

Licence revenue was down 17%, support revenue was down 2%, professional services revenue was down 15% and software-as-a-service (SaaS) revenue was down 5%.

HP Financial Services revenue was down 7% year over year with a 2% decrease in net portfolio assets and a 1% decrease in financing volume. The business delivered an operating margin of 10.6%.

Despite the above, Meg Whitman, HP chairman, president and CEO remains optimistic.

"I'm pleased with where we ended the quarter, the continued success of our turnaround, and the progress we're making on separation.

"Despite some tough challenges, we executed well across many parts of our portfolio, sustained our commitment to innovation, and delivered the results we said we would. 

“HP is becoming stronger as we head into the second half of our fiscal year and separation in November," she says.

Separation update

HP provided an update on its planned separation into two independent companies. 

According to a statement, the separation remains on track and the company expects associated dis-synergies of approximately $400 to $450 million. 

The company also announced new future leadership appointments for both companies.

Cathie Lesjak will become chief financial officer of HP Inc., and with Lesjak's move to HP Inc., Tim Stonesifer will become CFO of Hewlett Packard Enterprise. 

Stonesifer currently serves as CFO of HP's Enterprise Group and has also held finance leadership positions at General Motors International Operations and General Electric Company.

Chris Hsu has been selected to become chief operating officer (COO) at Hewlett Packard Enterprise.

As COO, Hsu will expand his duties to oversee and manage the continued separation execution, as well as HP Financial Services, HP says.  

Alan May will join Hewlett Packard Enterprise as head of human resources. 

Asset management

HP generated $1.5 billion in cash flow from operations in the second quarter, down 51% from the prior-year period.

Inventory ended the quarter at $6.2 billion, up four days year over year to 29 days.

Accounts receivable ended the quarter at $12.3 billion, down three days year over year to 44 days.

Accounts payable ended the quarter at $14.9 billion, up 10 days year over year to 69 days.

HP's dividend payment of $0.16 per share in the second quarter resulted in cash usage of $291 million.

HP also utilised $659 million of cash during the quarter to repurchase approximately 19.0 million shares of common stock in the open market, and exited the quarter with $15.1 billion in gross cash, where gross cash includes cash and cash equivalents, short-term investments, and certain long-term investments.

Outlook

For the fiscal 2015 third quarter, HP estimates non-GAAP diluted net EPS to be in the range of $0.83 to $0.87 and GAAP diluted net EPS to be in the range of $0.50 to $0.54. 

Fiscal 2015 third quarter non-GAAP diluted net EPS estimates exclude after-tax costs of approximately $0.33 per share, related to separation costs, the amortisation of intangible assets, restructuring charges, defined benefit plans settlement charges and acquisition-related charges.

For fiscal 2015, HP estimates non-GAAP diluted net EPS to be in the range of $3.53 to $3.73 and GAAP diluted net EPS to be in the range of $2.03 to $2.23.

Fiscal 2015 non-GAAP diluted net EPS estimates exclude after-tax costs of approximately $1.50 per share, related to separation costs, the amortisation of intangible assets, restructuring charges, defined benefit plans settlement charges and acquisition-related charges.

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