HP Earnings; Printer revenue & supplies down 5%

HP earnings are out and while they’re not horrible, they’re not great. I don’t look at the whole company, I generally only focus on the parts of it I focus on. Specifically, print.

Printer group numbers:

  • Total hardware units down 4% YoY
  • Commercial hardware units flat YoY
  • Supplies revenue down 5% YoY

Click here to read HP’s Earnings Press Release

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HP posted the following:

  • In Q1, we delivered earnings per share of $0.92, up 2% from the prior-year period and within the previously provided outlook of $0.89 to $0.93 per share
  • Q1 revenue was $26.8 billion, down 5% from the prior-year period and down 2% on a constant currency basis
  • We have revised our FY15 EPS outlook lower entirely due to currency.  With 65% of our revenue coming from outside the U.S., currency movements present a significant headwind to HP in FY15.  We now expect that headwind to be approximately 6 points, versus 2 points when we provided our outlook back in November.  That difference equates to approximately $3.3 billion in revenue, $1.5 billion in operating profit, or $0.60 in earnings per share.
    • We believe we will be able to manage half of that through repricing and cost actions, but estimate a negative earnings impact of approximately$0.30 per share entirely due to currency.  Fully mitigating currency movements of this size would require reducing investments in areas like innovation, key systems and tools, and placement of printer units – and that simply would not be the right thing to do to support our strategy for long-term success.
    • With all that in mind, we are updating FY15 non-GAAP diluted net earnings per share outlook to $3.53 – $3.73, which is lower by 30 cents due to currency headwinds.
  • We provided estimates for separation costs and foreign tax expenses in both fiscal 2015 and 2016.  These charges include finance, IT, consulting and legal fees, real estate, and other items that are incremental and one-time in nature, and not reflective of our operational performance.
    • Q1 GAAP chart of $80 million & Q2 GAAP charge of $250 million.  Full year FY15 charges are expected to be $1.3 billion and the FY16 estimate is $500 million.  While these are large numbers, they represent less than 2 percent of our annual operating costs and are necessary to realize the potential of the separation into two world class companies.
    • Additionally, separation related capex is ~$300 million and foreign tax expenses are ~$950 million in fiscal 2015.  We do expect more than half of the tax expenses to be offset by foreign tax credits.
  • Our FY15 cash flow outlook is now $3.5 – $4 billion entirely due to currency and separation charges.  Otherwise our cash flow outlook would have been unchanged from the previous outlook of $6.5 to $7 billion.