HP Guides Down - Work Force Reduction of 4K to 6K
November 23, 2022
HP
detailed their fiscal year 2023 Future Ready Transformation plan, driving
significant structural cost savings through digital transformation, portfolio
optimization and operational efficiency. The company estimates that these
actions will result in annualized gross run rate savings of at least $1.4
billion by the end of fiscal 2025. The company estimates that it will incur
approximately $1.0 billion in labor and non-labor costs related to restructuring
and other charges, with approximately $0.6 billion in fiscal 2023, and the rest
split approximately equally between fiscal 2024 and 2025. The company expects to
reduce gross global headcount by approximately 4,000-6,000 employees. These
actions are expected to be completed by the end of fiscal 2025.
The company reported Q4 earnings of 85 cents a share with net
revenue of $14.8 billion. Wall Street had expected adjusted earnings of 84 cents
a share on revenue of $14.69 billion.
Fiscal 2022 GAAP diluted net EPS was $3.05, down from $5.33
in the prior-year period and below the previously provided outlook of $3.46 to
$3.56. Fiscal 2022 non-GAAP diluted net EPS was $4.08, up from $3.79 in the
prior-year period and within the previously provided outlook of $4.02 to $4.12.
Fiscal 2022 non-GAAP net earnings and non-GAAP diluted net EPS exclude after-tax
adjustments of $1.1 billion, or $1.03 per diluted share, related to
restructuring and other charges, acquisition and divestiture charges,
amortization of intangible assets, Russia exit charges, non-operating
retirement-related (credits)/charges, and tax adjustments.
Fourth quarter net revenue was $14.8 billion, down 11.2% (down 8.0% in constant
currency) from the prior-year period.
Fourth quarter GAAP diluted net EPS was negligible, down from $2.71 in the
prior-year period and below the previously provided outlook of $0.44 to $0.54,
due to one-time non-cash tax adjustments. Fourth quarter non-GAAP diluted net
EPS was $0.85, down from $0.94 in the prior-year period and within the
previously provided outlook of $0.79 to $0.89. Fourth quarter non-GAAP net
earnings and non-GAAP diluted net EPS exclude after-tax adjustments of $857
million, or $0.85 per diluted share, related to restructuring and other charges,
acquisition and divestiture charges, amortization of intangible assets, Russia
exit charges, non-operating retirement-related (credits)/charges, and tax
adjustments.
“We had a solid end to our fiscal year despite navigating a volatile
macro-environment and softening demand in the second half. In Q4 we delivered on
our non-GAAP EPS target, while also completing our three-year value creation
plan and exceeding our key metrics," said Enrique Lores, HP President and CEO.
“Looking forward, the new Future Ready strategy we introduced this quarter will
enable us to better serve our customers and drive long-term value creation by
reducing our costs and reinvesting in key growth initiatives to position our
business for the future.”
Asset management
HP generated $4.5 billion in net cash provided by operating activities and $3.9
billion of free cash flow in fiscal 2022. Free cash flow includes net cash
provided by operating activities of $4.5 billion adjusted for net investments in
leases of $155 million and net investments in property, plant and equipment of
$765 million. HP utilized $4.3 billion of cash during fiscal 2022 to repurchase
approximately 126 million shares of common stock in the open market. When
combined with the $1.0 billion of cash used to pay dividends, HP returned 138%
of its free cash flow to shareholders in fiscal 2022.
HP's net cash provided by operating activities in the fourth quarter of fiscal
2022 was $1.9 billion. Accounts receivable ended the quarter at $4.5 billion, up
1 day quarter over quarter to 28 days. Inventory ended the quarter at $7.6
billion, down 6 days quarter over quarter to 57 days. Accounts payable ended the
quarter at $15.3 billion, down 5 days quarter over quarter to 114 days.
HP generated $1.8 billion of free cash flow in the fourth quarter. Free cash
flow includes net cash provided by operating activities of $1.9 billion adjusted
for net investments in leases of $61 million and net investments in property,
plant and equipment of $144 million.
HP’s dividend payment of $0.25 per share in the fourth quarter resulted in cash
usage of $0.2 billion. HP utilized $0.8 billion of cash during the quarter to
repurchase approximately 26.6 million shares of common stock in the open market.
As a result, HP returned 55% of its fourth quarter free cash flow to
shareholders. HP exited the quarter with $3.2 billion in gross cash, which
includes cash and cash equivalents and short-term investments of $17 million.
The HP board of directors has declared a quarterly cash dividend of $0.2625 per
share on the company’s common stock, payable on January 4, 2023. This is an
increase of 5% from the prior dividend.
Fiscal 2022 fourth quarter segment results
Personal Systems net revenue was $10.3 billion, down 13% year over year (down
9% in constant currency) with a 4.5% operating margin. Consumer net revenue
decreased 25% and Commercial net revenue decreased 6%. Total units were down 21%
with Notebooks units down 26% and Desktops units down 3%.
Printing net revenue was $4.5 billion, down 7% year over year (down 6% in
constant currency) with a 19.9% operating margin. Total hardware units were down
3% with Consumer units down 4% and Commercial units up 5%. Consumer net revenue
was down 7% and Commercial net revenue was up 1%. Supplies net revenue was down
10% (down 10% in constant currency).
Outlook
For
the fiscal 2023 first quarter, HP estimates GAAP diluted net EPS to be in the
range of $0.47 to $0.57 and non-GAAP diluted net EPS to be in the range of $0.70
to $0.80. Fiscal 2023 first quarter non-GAAP diluted net EPS estimates exclude
$0.23 per diluted share, primarily related to restructuring and other charges,
acquisition and divestiture charges, amortization of intangible assets,
non-operating retirement-related (credits)/charges, tax adjustments and the
related tax impact on these items.
The Q1 2023 consensus of 86 cents per share.
For fiscal 2023, HP estimates GAAP diluted net EPS to be in the range of $2.22
to $2.62 and non-GAAP diluted net EPS to be in the range of $3.20 to $3.60.
Fiscal 2023 non-GAAP diluted net EPS estimates exclude $0.98 per diluted share,
primarily related to restructuring and other charges, acquisition and
divestiture charges, amortization of intangible assets, non-operating
retirement-related (credits)/charges, tax adjustments and the related tax impact
on these items. For fiscal 2023, HP anticipates generating free cash flow in the
range of $3.0 to $3.5 billion.
For the 2023 fiscal year, consensus was $3.62 per share.
