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Thursday, February 23, 2012

HP Earnings Rebound QoQ but Drop YoY, Reorganization of Reorganization Continues

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HP Earnings Rebound QoQ but Drop YoY, Reorganization of Reorganization Continues


HP Prelude QE January 2012 CEO Meg Whitman, former eBay CEO and California Governor candidate, has the task of redefining HP. This is after HP already attempted to redefine itself through former and fired CEO Léo Apotheker. CEO Apotheker and the Board of Directors announced last year a "historic company transition" including leaving the consumer PC market, leaving the webOS mobile device market, and entering enterprise cloud computing services. CEO Whitman then announced HP would keep the personal systems group and stay in the consumer PC market. HP continues in flux and the "new HP" remains to be seen. Therefore, financial performance is expected to continue historically weak as reorganization of the reorganization is implemented.


HP Summary QE January 2012 (GAAP) Financial performance rebounded QoQ but dropped YoY as expected. Total revenues decreased both QoQ and YoY, which is concerning. Earnings per share, cash flow per share, operating income, net income, gross margin, operating margin, and net margin were up QoQ but down YoY. Debt increased to a concerning $30.9B and 24% of total assets. The outlook for QE April is encouraging with a projected increase in earnings per share QoQ but still another decrease YoY. The bottom appears to be in for HP. HP has a large, embedded product financing operation which results in lower financial performance than other technology companies. Financial position continues as acceptable, with adequate capital, adequate liquidity, but higher debt.


HP Income Statement QE January 2012 (GAAP) HP reported total revenues of $30.04B, net income of $1.47B, and earnings per share of $0.73. From the prior quarter QE October 2011, these were QoQ -6.49%, +514.23%, and +508.33%, respectively. From the prior year QE January 2011, these were -7.02%, -43.65%, and -37.61%, respectively. Gross margin, operating margin, and net margin were up QoQ from the multi-year lows but down YoY at 22.38%, 6.80%, and 4.89%, respectively. Cash flow from operations of $0.60 was down QoQ and YoY. The operating expense ratio of 15.58% is about the historical average and indicates operating expenses are contained.


HP Balance Sheet QE January 2012 (GAAP) HP's total assets decreased -2.26% QoQ to $126.60 billion, just below the prior quarter record. The capital to assets ratio of 31.26% is adequate and above recent multi-year lows. The current ratio of 38.51% is another multi-year low. The return on assets of +4.74% is a multi-year low. Total debt of $30.90 billion is higher at 24.41% of total assets, a multi-year high, and beginning to be of concern.


HP Outlook (GAAP) QE April 2012 HP estimates non-GAAP diluted EPS to be in the range of $0.88 to $0.91 and GAAP diluted EPS to be in the range of $0.68 to $0.71. Second quarter fiscal 2012 non-GAAP diluted EPS estimates exclude after-tax costs of approximately $0.20 per share, related primarily to the amortization of purchased intangible assets, restructuring charges and acquisition-related charges.


HP Financial Performance by the Quarters


HP GAAP Earnings Per Share and Cash Flow per Share Current Earnings per Share of $0.73 is +508% QoQ, -38% YoY, the first increase in 4 quarters, and below the $0.83 chart average. Current Cash Flow per Share of $0.60 is a 12-quarter low and the 3rd consecutive quarterly decrease.




HP Total Revenues and Net Income Current Total Revenues of $30.04B are a multi-year low, -6% QoQ, -7% YoY, decreased 4 of the past 5 quarters, decreased 5 of the past 8 quarters, and below the chart average $31.41B. Current Net Income of $1.47B +514% QoQ, -44% YoY, and below the chart average $1.97B.




HP Gross Margin, Operating Margin, and Net Margin Current Gross Margin of 22.38% increased QoQ, decreased YoY, and is below the chart average 23.48%. Current Operating Margin of 6.80% increased QoQ, decreased YoY, and is below the chart average 8.38%. Current Net Margin of 4.89% also increased QoQ, decreased YoY, and is below the chart average of 6.27%.




HP Return on Assets Current Return on Assets of +4.74% is a multi-year low, is historically low for a technology company, and reflects the struggles of HP. ROA has historically been low because of an embedded financing operations. Return on Assets previously had been stable in the 7%+ range. The chart average ROA is 6.98%.




HP Growth Rates Current Total Revenues Growth YoY of -7.02% YoY is an 9-quarter low and below the chart average +2.92%. Current Earnings per Share Growth YoY of -37.61% YoY is the second lowest in several years and below the chart average +2.83%.




HP Segment Revenues The current quarter was a decrease in all major segments, with a notable drop in the segment leaders Personal Systems and Services.




HP Regional Revenues For the current quarter, Americas revenues were a much lower QoQ of $13.2B and 45% of total revenues. Europe, Middle East, Africa were flat QoQ at $11.7B and 36% and Asia Pacific was down QoQ at $5.2B and 19%. International sales, outside of U.S., were 66% of total revenues and included within the above totals. BRIC countries (Brazil, Russia, India, and China) were 13% of total revenues and included within the above totals.



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