01—Abstract
Summary
Summary of the 10-K filed December 13, 2018. Cited figures are marked; the original filing is the authoritative source.
HP Inc. (formerly Hewlett-Packard Company) reported fiscal 2018 net revenue of $58.47 billiona, up from $52.06 billion in fiscal 2017, with net earnings of $5.33 billion ($3.26 diluted EPS) versus $2.53 billion ($1.48) a year earlier.
The result was driven by a $2.8 billionb net income tax benefit from discrete items, including the provisional effects of the Tax Cuts and Jobs Act of 2017, and by revenue growth in Personal Systems ($37.66 billion) and Printing ($20.81 billion). Gross margin declined to 18.2% from 18.4%, and earnings from continuing operations rose to $4.06 billion from $3.52 billion. Interest and other, net expense increased to $1.05 billion, reflecting the reversal of tax indemnification receivables from Hewlett Packard Enterprise and a $126 million loss on debt extinguishment.
Cash flow from operations was $4.53 billionc, compared with $3.68 billion in fiscal 2017. HP repurchased $2.56 billion of common stock and paid $899 million in dividends, and total debt fell to $5.99 billion from $7.82 billion after a roughly $1.85 billion tender offer for senior notes. The company had about $3.9 billion remaining under its share repurchase authorization at October 31, 2018.
Stockholders' deficit narrowed to $639 milliond from $3.41 billion. The filing also flags material ongoing matters, including the Oracle damages judgment (approximately $3.0 billion awarded to HP, with the appeal pending and no amount recorded), copyright levy proceedings in Europe, an Indian customs dispute, and Autonomy-related litigation. The TCJA provisional amounts remain subject to change, and the company expects to pay the approximately $3.3 billion deemed repatriation tax over eight years.
02—Key points
Key Highlights
- Net revenue rose to $58.47 billion in fiscal 2018 from $52.06 billion, an increase the filing attributes to growth in Notebooks, Desktops, Supplies and Commercial Printing Hardware plus favorable currency effects.
- Net earnings were $5.33 billion ($3.26 diluted EPS), more than double the $2.53 billion reported in fiscal 2017, largely because of a $2.8 billion net income tax benefit from discrete items including TCJA impacts.
- Gross margin fell to 18.2% from 18.4%, mainly due to higher Commercial Hardware unit placements in Printing and rising commodity and logistics costs in Personal Systems.
- Operating cash flow was $4.53 billion, and HP returned capital through $2.56 billion of share repurchases and $899 million of dividends.
- Total debt declined to $5.99 billion from $7.82 billion after the repurchase of about $1.85 billion of U.S. Dollar Global Notes; approximately $3.9 billion remained under the repurchase authorization.
- The Samsung printer business acquisition, completed November 1, 2017 for $1.05 billion in total consideration, contributed to Printing revenue growth and higher R&D and SG&A expenses.
- Potential upside from the Oracle litigation (approximately $3.0 billion jury award to HP, under appeal and not recorded) and the one-time TCJA transition tax of approximately $3.3 billion payable over eight years represent significant items for investors to track.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2018, HP kept $0.09.
- Revenue$58.47B100.0%
- Cost of revenue−$47.80B81.8%
- Gross profit$10.67B18.2%
- Operating costs−$6.84B11.7%
- Operating income$3.83B6.6%
- Interest, other & tax$1.50B2.6%
- Net income$5.33B9.1%
Where FY2018 revenue went
$58.47B- Cost of revenue: $47.80B, 82% of revenue
- Operating income: $3.83B, 6.6% of revenue
- R&D: $1.40B, 2.4% of revenue
- SG&A: $5.10B, 8.7% of revenue
- Other operating costs: $335.0M, 0.6% of revenue
Kept 6.6% as operating incomeOperating income $3.83B · 6.6%Other operating costs $335.0M · 0.6%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2018filed December 13, 2018Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $58.47B$52.06B | +12.3% |
| Cost of Revenue | $47.80B$42.48B | +12.5% |
| Gross Profit | $10.67B$9.58B | +11.4% |
| R&D Expenses | $1.40B$1.19B | +18.0% |
| SG&A Expenses | $5.10B$4.53B | +12.5% |
| Operating Expenses | $54.64B$48.69B | +12.2% |
| Operating Income | $3.83B$3.37B | +13.7% |
| Interest Expense | $312.00M$309.00M | +1.0% |
| Net Income | $5.33B$2.53B | +110.9% |
| EPS (Basic) | $3.30$1.50 | +120.0% |
| EPS (Diluted) | $3.26$1.48 | +120.3% |
| Shares Outstanding (Basic) | 1.61B1.69B | −4.3% |
| Shares Outstanding (Diluted) | 1.63B1.70B | −4.0% |
05—Questions
Frequently Asked Questions
How did HP's profitability change in fiscal 2018?
Net earnings rose to $5.33 billion from $2.53 billion, but this was driven largely by a $2.8 billion net income tax benefit from discrete items, including TCJA-related impacts. Earnings from continuing operations increased to $4.06 billion from $3.52 billion, while gross margin declined to 18.2% from 18.4%.
What drove the increase in net revenue?
Net revenue increased 12.3% to $58.47 billion, primarily driven by growth in Notebooks, Desktops, Supplies and Commercial Printing Hardware and favorable foreign currency impacts. Personal Systems revenue reached $37.66 billion and Printing revenue reached $20.81 billion.
How much cash did HP generate and return to shareholders?
Net cash provided by operating activities was $4.53 billion. HP repurchased $2.56 billion of common stock and paid $899 million in cash dividends, and dividends declared were $0.56 per share.
What are the key legal and tax uncertainties?
HP's TCJA accounting is provisional, with a $3.3 billion deemed repatriation tax payable over eight years and provisional tax benefits of $760 million recorded. The filing also discloses a potential recovery of approximately $3.0 billion from Oracle, which is under appeal and not recorded, and ongoing copyright levy, Indian customs and Autonomy-related proceedings.
06—Continue