This summary is based on the fourth quarter fiscal 2008 earnings call conducted by Hewlett Packard Co. (HPQ) on November 24, 2008.
Management:
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Chairman of the Board, Chief Executive Officer and President: Mark V. Hurd
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HP Executive Vice President and Chief Financial Officer: Catherine A. Lesjak
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Vice President, Investor Relations: Jim Burns
Key Investors Issues
- Net revenue rose 19%, or $5.3 billion, from a year earlier to $33.6 billion.
- Earnings were $2.1 billion or 87 cents a share, down marginally from $2.2 billion or 84 cents a share in the prior year.
- Share repurchases totaled $1.9 billion or 45 million shares.
Full Year Highlights:
- Net revenue were up 13%, or $14.1 billion, to $118.4 billion
- The firm returned $10.4 billion to shareholders through share repurchases and dividends and invested $11.2 billion of net cash in acquisitions.
Fourth Quarter Highlights
Revenue totaled $33.6 billion, up 19% year-over-year or up 16% in constant currency from $28.3 million in 2007.
- The firm generated 68% of its total revenue from outside the United States, revenue in EMEA was up 22%, the Americas increased 17%, and Asia-Pacific increased 14%.
- Gross margin was 22.9%, down 180 basis points from 24.7% one year ago, driven primarily by the addition of EDS, which reduced gross margins by 140 basis points and, to a lesser extent, by a more normalized impact from commodity pricing compared with a year ago.
- Operating expenses were $4.3 billion or 12.8% of revenue, down 2 percentage points from a year ago due to the continued expense discipline, even as the firm invested appropriately in R&D; go to market, and customer support.
- Operating profit increased 21% to $3.4 billion or 10.1% of revenue and earnings were $2.1 billion or 87 cents a share, down marginally from $2.2 billion or 84 cents a share in the prior year.
Day’s sales outstanding increased to 45 days from 43 days one year ago, while day’s payable was 49 days, down one day year-over-year.
- With regards to channel inventory, HP ended the quarter with ESS flat, IPG up half a week, and PSG up a week year-over-year.
- Property, plant and equipment was up $3 billion year-over-year as a result of the EDS acquisition with $1.1 billion of land and buildings and $2.1 billion of equipment, primarily related to EDS''s data center.
Gross CapEx was $1 billion, up 26% from the prior year period with the increased capital expenditures primarily related to growth in the leasing and outsourcing businesses, including EDS.
- Cash flow from operations was $3.3 billion and free cash flow was $2.4 billion.
- Share repurchases totaled $1.9 billion or 45 million shares, the firm still has roughly $9.1 billion remaining in the current share repurchase authorization and paid the normal quarterly dividend totaling $196 million.
- The firm closed the year with a strong balance sheet, including total gross cash of $10.3 billion.
- Total debt was $17.9 billion, including $7.4 billion associated with HP Financial Services and $7.1 billion in commercial paper.
– The firm signed up for the U.S. government commercial paper funding facility, which provides access up to approximately $10 billion of commercial paper with 90 day maturities.
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Personal Systems grew revenue 10% or over $1 billion to $11.2 billion as unit shipments grew 19% over the prior year period, with double-digit unit growth in every region as well as the Consumer and Commercial businesses.
- Growth in PSG continues to be driven by growth in notebooks and emerging geographies withNotebook revenue grew 21% and PC revenue in the BRIC countries grew 29%.
- The innovative product portfolio, combined with over 80,000 retail outlets and 140,000 distribution partners around the globe gives the firm a sustainable competitive advantage. - PSG operating profit was $616 million or 5.5% of revenue, down 30 basis points versus the prior year, reflecting a more normalized impact from commodity pricing.
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Imaging and Printing reported revenue of $7.5 billion, down 1% year-on-year as supplies revenue growth of 9% was offset by declines in Commercial and Consumer hardware revenue of 10% and 21% respectively.
- Operating margin increased 100 basis points to 15.5% as strong Supplies growth and cost reductions were partially offset by discounting.
- The firm gained share while total printer units were down 8% and Consumer and Commercial printer hardware units declined 8% and 9%, respectively.
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Enterprise Storage and Servers revenue was $5.1 billion, down 1% year-over-year as blades continue to be a strong growth driver; total ESS Blade revenue increased 43%.
- Within ESS, Storage revenue grew 13% driven by the midrange EDA business, which outpaced major competitors with 16% growth.
- In the Server businesses, Business Critical Systems revenue declined 10% and Industry Standard Server revenue declined 3% from the prior year.
- Total ISS units increased 7%, led by strong Blade growth of 39%.
- Enterprise Storage and Servers posted solid fourth quarter operating profit of $705 million or 13.9% of revenue.
- Revenue in
HP Software grew 13% to $855 million and BTO outgrew its primarily competitors, increasing 15% from the prior year.
- Other software, which includes Open Call, Business Intelligence, and Information Management, grew 1% as the strength in the information management business was offset by declines in Open call.
- Software posted operating profit of $195 million or 22.8% of revenue.
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HP Services, with the addition of EDS, doubled its revenue to $8.6 billion and reported solid operating profit of $920 million or 10.6% of revenue.
- For the period between the August 26 acquisition date and October 31, EDS delivered revenue of $3.9 billion as customers across all regions continue to respond favorably to the combined services business.
- Demand remains solid, with a healthy mix of new and existing customers and integration plans are on track as the firm eliminated over 2,300 positions in connection with the EDS integration.
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HP Financial Services had revenue of $691 million, up 5% year-over-year, and generated operating margin of 7.4%.
- The firm continue to apply the same rigorous process for assessing the creditworthiness of its customers and the quality of its receivables.
Operational Highlights:
