Saturday, September 8, 2012

HP Earnings Review: "Early stages of multi-year turnaround"

HP reported QE July 2012 financial results on August 22

I give CEO Meg Whitman the floor to report to us on the quarterly GAAP net loss of -$8.86 billion, "HP is still in the early stages of a multi-year turnaround, and we're making decent progress despite the headwinds. During the quarter we took important steps to focus on strategic priorities, manage costs, drive needed organizational change, and improve the balance sheet. We continue to deliver on what we say we will do." Hopefully this is the worst quarterly hit possible and GAAP earnings per share has reached bottom at a staggering -$4.49.

From a non-GAAP (operating) financial standpoint, this was a stable quarter with an earnings per share of $1.00. This compares to the prior quarters of $0.98, $0.92, $1.17, and $1.10.

From a GAAP financial standpoint, see charts below, this quarter was a disaster and the short-term, self-inflicted pain is obvious. Loss per share was an excruciating -$4.49, compared to the prior quarters' earnings per share of +$0.80, +$0.73, +$0.12, and +$0.93. Revenues were a 3-year low of $29.67 billion, which was an additional and slight disappointment. Gross margin of 23.08% was encouraging and comparable to the 3-year average of 23.44%.

The GAAP meltdown was attributable to the Compaq goodwill and intangibles write-downs plus yet more restructuring charges: "GAAP loss per share was $4.49, down from earnings per share (EPS) of $0.93 in the prior-year period. Non-GAAP diluted EPS was $1.00, down 9% from the prior-year period. Third quarter non-GAAP earnings information excludes after-tax costs of $10.8 billion, or $5.49 per diluted share, related to the amortization and impairment of purchased intangible assets, the impairment of goodwill, restructuring charges, acquisition-related charges and charges relating to the wind-down of certain retail publishing business activities, including the previously announced charges related to the impairment of goodwill within HP's Services segment, the restructuring program announced in May 2012, and the impairment of the purchased intangible asset associated with the "Compaq" trade name."

As noted before, the restructuring plan is thus: long-term good with incoming short-term and intermediate-term pain for GAAP earnings. Non-GAAP operating earnings will fare much better.

GAAP Quarterly Financial Result, QoQ Change, YoY Change
Total Assets: $117.56 billion, -8%, -6%
Revenues: $29.67 billion, -3%, -5%
Net Loss: -$8.86 billion, -656%, -560%
Loss per Share: -$4.49, -661%, -583%
Cash Flow per Share $1.44
1-Year Return on Assets -4.44%

HP Outlook (Non-GAAP) QE October 2012 * HP estimates Non-GAAP diluted EPS to be in the range of $1.15 to $1.17. The analysts are estimating $1.18. * HP estimates GAAP diluted EPS to be in the range of $0.71 to $0.73.


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