-- 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
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.
Q4 Full Year --------------- --------------- Q4 Q4 FY04 FY03 Y/Y FY04 FY03 Y/Y ---- ---- --- ---- ---- --- Revenue (billions) $21.4 $19.9 8% $79.9 $73.1 9% Non-GAAP operating margin(1) 7.0% 7.2% 6.3% 6.2% GAAP operating margin 6.0% 5.4% 5.3% 4.0% Non-GAAP diluted EPS(1) $0.41 $0.36 14% $1.33 $1.16 15% GAAP diluted EPS $0.37 $0.28 32% $1.15 $0.83 39%
"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
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
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.
Financial Services
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.
Asset Management
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.
Outlook
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 www.hp.com/hpinfo/investor/.
HP's Q4 FY04 earnings conference call is accessible via an audio webcast at www.hp.com/hpinfo/investor/financials/quarters/2004/q4webcast.html.
About HP
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 is available at 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."
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, 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.
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (Unaudited) (In millions except per share amounts) Three months ended ----------------------------------- October 31, July 31, October 31, 2004 2004 2003(a) ---- ---- ---- Net revenue $21,389 $18,889 $19,853 Costs and expenses: Cost of sales 16,288 14,443 14,804 Research and development 859 862 907 Selling, general and administrative 2,751 2,738 2,707 Amortization of purchased intangible assets 165 146 143 Restructuring charges 13 9 190 Acquisition-related charges 24 6 28 In-process research and development charges - 28 1 ------ ------ ------ Total costs and expenses 20,100 18,232 18,780 ------ ------ ------ Earnings from operations 1,289 657 1,073 Interest and other, net 2 20 (20) (Losses) gains on investments (1) 1 12 ------ ------ ------ Earnings before taxes 1,290 678 1,065 Provision for taxes 199 92 203 ------ ------ ------ Net earnings $1,091 $586 $862 ====== ====== ====== Net earnings per share: Basic $0.37 $0.19 $0.28 Diluted $0.37 $0.19 $0.28 Cash dividends declared per share $- $0.16 $- Weighted-average shares used to compute net earnings per share: Basic 2,968 3,037 3,046 Diluted 2,991 3,057 3,075 (a) Certain reclassifications have been made to prior year amounts in order to conform to the current year presentation.
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (Unaudited) (In millions except per share amounts) Twelve months ended October 31, ------------------- 2004 2003(a) ---- ---- Net revenue $79,905 $73,061 Costs and expenses: Cost of sales 60,340 53,858 Research and development 3,506 3,651 Selling, general and administrative 11,024 11,012 Amortization of purchased intangible assets 603 563 Restructuring charges 114 800 Acquisition-related charges 54 280 In-process research and development charges 37 1 ------ ------ Total costs and expenses 75,678 70,165 ------ ------ Earnings from operations 4,227 2,896 Interest and other, net 35 21 Gains (losses) on investments 4 (29) Dispute settlement (70) - ------ ------ Earnings before taxes 4,196 2,888 Provision for taxes 699 349 ------ ------ Net earnings $3,497 $2,539 ====== ====== Net earnings per share: Basic $1.16 $0.83 Diluted $1.15 $0.83 Cash dividends declared per share $0.32 $0.32 Weighted-average shares used to compute net earnings per share: Basic 3,024 3,047 Diluted 3,055 3,063 (a) Certain reclassifications have been made to prior year amounts in order to conform to the current year presentation.
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES NON-GAAP CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS Excluding adjustments itemized below (Unaudited) (In millions except per share amounts) Three months ended ----------------------------------- October 31, July 31, October 31, 2004 2004 2003(a) ---- ---- ---- Net revenue $21,389 $18,889 $19,853 Costs and expenses: Cost of sales 16,288 14,443 14,804 Research and development 859 862 907 Selling, general and administrative 2,751 2,738 2,707 ------ ------ ------ Total costs and expenses 19,898 18,043 18,418 ------ ------ ------ Non-GAAP earnings from operations 1,491 846 1,435 Interest and other, net 2 20 (20) ------ ------ ------ Non-GAAP earnings before taxes 1,493 866 1,415 Provision for taxes 266 138 312 ------ ------ ------ Non-GAAP net earnings $1,227 $728 $1,103 ====== ====== ====== Non-GAAP net earnings per share: Basic $0.41 $0.24 $0.36 Diluted $0.41 $0.24 $0.36 Weighted-average shares used to compute net earnings per share: Basic 2,968 3,037 3,046 Diluted 2,991 3,065 3,075 An itemized reconciliation between net earnings on a GAAP basis and non-GAAP basis is as follows: GAAP net earnings $1,091 $586 $862 Amortization of purchased intangible assets 165 146 143 Restructuring charges 13 9 190 Acquisition-related charges 24 6 28 In-process research and development charges - 28 1 ------ ------ ------ Total non-GAAP adjustments to earnings from operations 202 189 362 Losses (gains) on investments 1 (1) (12) Income tax effect of reconciling items (67) (46) (109) ------ ------ ------ Non-GAAP net earnings $1,227 $728 $1,103 ====== ====== ====== (a) Certain reclassifications have been made to prior year amounts in order to conform to the current year presentation.
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES NON-GAAP CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS Excluding adjustments itemized below (Unaudited) (In millions except per share amounts) Twelve months ended October 31, --------------------- 2004 2003(a) ---- ---- Net revenue $79,905 $73,061 Costs and expenses: Cost of sales 60,340 53,858 Research and development 3,506 3,651 Selling, general and administrative 11,024 11,012 ------ ------ Total costs and expenses 74,870 68,521 ------ ------ Non-GAAP Earnings from operations 5,035 4,540 Interest and other, net 35 21 Dispute settlement (70) - ------ ------ Non-GAAP Earnings before taxes 5,000 4,561 Provision for taxes 933 1,004 ------ ------ Non-GAAP net earnings $4,067 $3,557 ====== ====== Non-GAAP net earnings per share: Basic $1.34 $1.17 Diluted $1.33 $1.16 Cash dividends declared per share $0.32 $0.32 Weighted-average shares used to compute net earnings per share: Basic 3,024 3,047 Diluted 3,055 3,071 An itemized reconciliation between net earnings on a GAAP basis and non-GAAP basis is as follows: GAAP net earnings $3,497 $2,539 Amortization of purchased intangible assets 603 563 Restructuring charges 114 800 Acquisition-related charges 54 280 In-process research and development charges 37 1 ------ ------ Total non-GAAP adjustments to earnings from operations 808 1,644 (Gains) losses on investments (4) 29 Income tax effect of reconciling items (234) (524) Non-recurring income tax benefit - (131) ------ ------ Non-GAAP net earnings $4,067 $3,557 ====== ====== (a) Certain reclassifications have been made to prior year amounts in order to conform to the current year presentation.
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (In millions) October 31, October 31, 2004 2003(a) ---- ---- (unaudited) ASSETS Current assets: Cash and cash equivalents $12,663 $14,188 Short-term investments 311 403 Accounts receivable, net 10,226 8,921 Financing receivables, net 2,945 3,026 Inventory 7,071 6,065 Other current assets 9,685 8,351 ------ ------ Total current assets 42,901 40,954 Property, plant and equipment, net 6,649 6,482 Long-term financing receivables and other assets 6,657 8,030 Goodwill and purchased intangibles, net 19,931 19,250 ------ ------ Total assets $76,138 $74,716 ====== ====== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable and short-term borrowings $2,511 $1,080 Accounts payable 9,377 9,285 Employee compensation and benefits 2,208 1,755 Taxes on earnings 1,709 1,599 Deferred revenue 4,348 3,665 Accrued restructuring 193 709 Other accrued liabilities 9,632 8,545 ------ ------ Total current liabilities 29,978 26,638 Long-term debt 4,623 6,494 Other liabilities 3,973 3,838 Stockholders' equity 37,564 37,746 ------ ------ Total liabilities and stockholders' equity $76,138 $74,716 ====== ====== (a) Certain reclassifications have been made to prior year balances in order to conform to the current year presentation.
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) (In millions) Three Months Fiscal Year Ended Ended October 30, October 31, 2004 2004 ---------- ------------ Cash flows from operating activities: Net earnings $1,091 $3,497 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 602 2,395 Provision for bad debt and inventory 175 465 Losses (gains) on investments 1 (4) In-process research and development charges - 37 Acquisition-related charges 24 54 Restructuring charges 13 114 Deferred taxes on earnings (191) 26 Other, net 72 93 Changes in assets and liabilities: Accounts and financing receivables (1,716) (696) Inventory (391) (1,341) Accounts payable 846 3 Taxes on earnings 179 (32) Other assets and liabilities 1,348 1,078 Restructuring (66) (601) ---------- ------------ Net cash provided by operating activities 1,987 5,088 ---------- ------------ Cash flows from investing activities: Investment in property, plant and equipment, net (739) (2,126) Proceeds from sale of property, plant and equipment 99 447 Purchases of investments (204) (715) Maturities and sales of investments 279 1,064 Net cash paid for business acquisitions, net of acquisition costs (277) (1,124) ---------- ------------ Net cash used in investing activities (842) (2,454) ---------- ------------ Cash flows from financing activities: Increase (decrease) in notes payable and short-term borrowings, net 7 (172) Issuance of debt - 9 Payment of debt (61) (285) Issuance of common stock under employee plans 32 570 Repurchase of common stock (2,205) (3,309) Dividends (240) (972) ---------- ------------ Net cash used in financing activities (2,467) (4,159) ---------- ------------ Decrease in cash and cash equivalents (1,322) (1,525) Cash and cash equivalents at beginning of period 13,985 14,188 ---------- ------------ Cash and cash equivalents at end of period $12,663 $12,663 ========== ============
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES SEGMENT INFORMATION (Unaudited) (In millions) Net revenue (which includes intersegment revenue) and earnings from operations for each segment are provided in the tables below, which includes a reconciliation to HP's consolidated condensed statement of earnings: Three months ended ---------------------------- Oct. 31, July 31, Oct. 31, 2004 2004 2003(a) -------- --------- --------- Net revenue: Enterprise Storage and Servers $4,104 $3,352 $3,846 Software 277 223 221 HP Services 3,659 3,466 3,245 -------- --------- --------- Technology Solutions Group 8,040 7,041 7,312 Imaging and Printing Group 6,543 5,648 6,233 Personal Systems Group 6,540 5,904 5,986 Financing 497 488 461 Corporate Investments 119 114 96 -------- --------- --------- Total segments 21,739 19,195 20,088 Eliminations of intersegment net revenue and other (350) (306) (235) -------- --------- --------- Total HP Consolidated $21,389 $18,889 $19,853 ======== ========= ========= Earnings from operations: Enterprise Storage and Servers $107 $(208) $131 Software (5) (45) (22) HP Services 367 309 391 -------- --------- --------- Technology Solutions Group 469 56 500 Imaging and Printing Group 1,089 837 1,015 Personal Systems Group 78 25 22 Financing 19 42 26 Corporate Investments (43) (52) (33) -------- --------- --------- Total segments 1,612 908 1,530 Corporate and unallocated costs, and eliminations (121) (62) (95) Restructuring charges (13) (9) (190) Amortization of purchased intangible assets (165) (146) (143) Acquisition-related charges (24) (6) (28) In-process research and development charges - (28) (1) Interest and other, net 2 20 (20) (Losses) gains on investments (1) 1 12 -------- --------- --------- Total HP Consolidated Earnings Before Taxes $1,290 $678 $1,065 ======== ========= ========= (a) Certain reclassifications have been made to prior year amounts in order to conform to the current year presentation.
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES SEGMENT INFORMATION (Unaudited) (In millions) Net revenue (which includes intersegment revenue) and earnings from operations for each segment are provided in the tables below, which includes a reconciliation to HP's consolidated condensed statement of earnings: Twelve months ended October 31, ------------------- 2004 2003(a) --------- --------- Net revenue: Enterprise Storage and Servers $15,152 $14,593 Software 922 774 HP Services 13,778 12,357 --------- --------- Technology Solutions Group 29,852 27,724 Imaging and Printing Group 24,199 22,569 Personal Systems Group 24,622 21,210 Financing 1,895 1,921 Corporate Investments 449 344 --------- --------- Total segments 81,017 73,768 Eliminations of inter-segment net revenue and other (1,112) (707) --------- --------- Total HP Consolidated $79,905 $73,061 ========= ========= Earnings from operations: Enterprise Storage and Servers $173 $142 Software (145) (190) HP Services 1,263 1,362 --------- --------- Technology Solutions Group 1,291 1,314 Imaging and Printing Group 3,847 3,596 Personal Systems Group 210 22 Financing 125 79 Corporate Investments (178) (161) --------- --------- Total segments 5,295 4,850 Corporate and unallocated costs, and eliminations (260) (310) Restructuring charges (114) (800) Amortization of purchased intangible assets (603) (563) Acquisition-related charges (54) (280) In-process research and development charges (37) (1) Interest and other, net 35 21 Gains (losses) on investments 4 (29) Litigation settlement (70) - --------- --------- Total HP Consolidated Earnings Before Taxes $4,196 $2,888 ========= ========= (a) Certain reclassifications have been made to prior year amounts in order to conform to the current year presentation.
(C) 2004 Hewlett-Packard Development Company, L.P. The information contained herein is subject to change without notice. HP shall not be liable for technical or editorial errors or omissions contained herein.
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