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HP Delivers Earnings Beat

November 25, 2020

HP announced fiscal 2020 net revenue of $56.6 billion, down 3.6% (down 2.3% in constant currency) from the prior-year period.

Fiscal 2020 GAAP diluted net EPS was $2.00, down from $2.07 in the prior-year period and above the previously provided outlook of $1.83 to $1.87. Fiscal 2020 non-GAAP diluted net EPS was $2.28, up from $2.24 in the prior-year period and above the previously provided outlook of $2.16 to $2.20. Fiscal 2020 non-GAAP net earnings and non-GAAP diluted net EPS exclude after-tax adjustments of $390 million, or $0.28 per diluted share, related to restructuring and other charges, acquisition-related charges, amortization of intangible assets, defined benefit plan settlement charges, non-operating retirement-related (credits)/charges, debt extinguishment costs and tax adjustments.

Fourth quarter net revenue was $15.3 billion, down 1.0% (up 0.1% in constant currency) from the prior-year period and up 7% sequentially.

Fourth quarter GAAP diluted net EPS was $0.49, up from $0.26 in the prior-year period and above the previously provided outlook of $0.32 to $0.36. Fourth quarter non-GAAP diluted net EPS was $0.62, up from $0.60 in the prior-year period and above previously provided outlook of $0.50 to $0.54. Fourth quarter non-GAAP net earnings and non-GAAP diluted net EPS exclude after tax adjustments of $167 million, or $0.13 per diluted share, related to restructuring and other charges, acquisition-related charges, amortization of intangible assets, defined benefit plan settlement charges, non-operating retirement-related (credits)/charges, and tax adjustments.

HP's diluted net EPS of 62 cents per share topped the 52 cents per share which was expected. The firm's revenue of $15.3 billion was also more than the $14.7 billion which was expected.

“We closed out a strong quarter with a beat on the top and bottom line. The strength of our innovation with the rigor of our execution drove sequential growth in revenue, operating profit, non-GAAP EPS and cash flow,” said Enrique Lores, President and CEO, HP Inc. “We had record unit shipments in the quarter, reflecting the important role HP technology is playing in the lives of our customers. Our results give us great confidence in our ability to drive long-term growth and shareholder value in 2021 and beyond.”

Asset management

HP generated $4.3 billion in net cash provided by operating activities and $3.9 billion of free cash flow in fiscal 2020. Free cash flow includes net cash provided by operating activities of $4.3 billion adjusted for net investments in leases of $152 million and net investments in property, plant and equipment of $577 million. HP utilized $3,107 million of cash during fiscal 2020 to repurchase approximately 166 million shares of common stock in the open market. When combined with the $997 million of cash used to pay dividends, HP returned 105% of its free cash flow to shareholders in fiscal 2020.

HP's net cash provided by operating activities in the fourth quarter of fiscal 2020 was $1.9 billion. Accounts receivable ended the quarter at $5.4 billion, down 1 day quarter over quarter to 32 days. Inventory ended the quarter at $6.0 billion, down 2 days quarter over quarter to 43 days. Accounts payable ended the quarter at $14.7 billion, down 3 days quarter over quarter to 105 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 $40 million and net investments in property, plant and equipment of $116 million.

In the fourth quarter, HP returned $1.6 billion to shareholders. HP utilized $1,340 million of cash during the quarter to repurchase approximately 71 million shares of common stock in the open market and paid a cash dividend of $238 million. As a result, HP returned 88% of its fourth quarter free cash flow to shareholders. HP exited the quarter with $5.1 billion in gross cash, which includes cash and cash equivalents and short-term investments of $0.3 billion included in other current assets.

The HP board of directors has declared a quarterly cash dividend of $0.1938 per share on the company’s common stock, payable on January 6, 2021. This is an increase of 10% from the prior dividend and consistent with HP’s previously stated objective to increase the dividend at least in-line with earnings growth over time.

Fiscal 2020 fourth quarter segment results

Personal Systems net revenue was $10.4 billion, flat year over year (up 1% in constant currency) with a 5.1% operating margin. Consumer net revenue increased 24% and Commercial net revenue decreased 12%. Total units were up 7% with Notebooks units up 25% and Desktops units down 31%.

Printing net revenue was $4.8 billion, down 3% year over year (down 2% in constant currency) with a 14.8%operating margin. Total hardware units were up 14% with Consumer hardware units up 18% and Commercial hardware units down 10%. Supplies net revenue was down 1% (flat in constant currency).

Outlook

For the fiscal 2021 first quarter, HP estimates GAAP diluted net EPS to be in the range of $0.58 to $0.64 and non-GAAP diluted net EPS to be in the range of $0.64 to $0.70. Fiscal 2021 first quarter non-GAAP diluted net EPS estimates exclude $0.06 per diluted share, primarily related to restructuring and other charges, acquisition-related charges, defined benefit plan settlement charges, amortization of intangible assets, non-operating retirement-related (credits)/charges, tax adjustments and the related tax impact on these items.

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