01—Abstract
Summary
Summary of the 10-K filed December 12, 2019. Cited figures are marked; the original filing is the authoritative source.
HP Inc. (HPQ) reported fiscal 2019 (year ended October 31, 2019) net revenue of $58.76 billiona, up slightly from $58.47 billion in fiscal 2018.
Earnings from operations were $3.88 billionb, compared with $3.83 billion a year earlier, and net earnings fell to $3.15 billion from $5.33 billion, a decline driven largely by a $1.35 billion charge in interest and other, net, which the filing attributes primarily to tax indemnifications related to the termination of the tax matters agreement with Hewlett Packard Enterprise. Diluted EPS was $2.07 versus $3.26. Personal Systems earnings from operations rose to $1.90 billion from $1.40 billion on higher notebook and desktop revenue, while Printing earnings from operations declined to $3.20 billion from $3.31 billion as Supplies revenue fell 4.8%.
The company remained focused on cost reduction, announcing the Fiscal 2020 Plan in September 2019 to reduce global headcount by approximately 7,000 to 9,000 employees and incur pre-tax charges of approximately $1.0 billionc. Cash flow from operations was $4.65 billion, and the company returned capital to shareholders through $2.41 billion in share repurchases and $970 million in dividends paid. Total debt was $5.1 billion against cash and cash equivalents of $4.5 billion at year end.
The company had approximately $6.5 billiond remaining under repurchase authorizations as of October 31, 2019. The filing also highlights ongoing risks, including competitive pricing pressure, declining supplies demand, tariffs, and litigation.
Notable matters include the Oracle damages judgment of approximately $3.0 billion (on appeal, with no amount recorded), copyright levy proceedings in Europe, and patent litigation brought by Neodron and Slingshot Printing. Stockholders' deficit was $1.19 billion at year end.
02—Key points
Key Highlights
- Net revenue rose to $58.76 billion in fiscal 2019 from $58.47 billion, with net revenue outside the United States increasing 0.7% to $38.2 billion.
- Net earnings declined to $3.15 billion from $5.33 billion, with diluted EPS of $2.07 versus $3.26, largely due to a $1.35 billion charge in interest and other, net, primarily from tax indemnifications tied to the termination of the HPE tax matters agreement.
- Personal Systems earnings from operations increased to $1.90 billion from $1.40 billion, while Printing earnings from operations fell to $3.20 billion from $3.31 billion.
- Printing Supplies net revenue decreased 4.8% in fiscal 2019, primarily due to demand weakness.
- The Fiscal 2020 Plan, approved in September 2019, targets a reduction of 7,000 to 9,000 employees with estimated pre-tax charges of approximately $1.0 billion.
- Cash flow from operations was $4.65 billion; the company repurchased $2.41 billion of stock and paid $970 million in dividends during the year.
- As of October 31, 2019, HP had approximately $6.5 billion remaining under share repurchase authorizations and a $4.0 billion committed revolving credit facility.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2019, HP kept $0.05.
- Revenue$58.76B100.0%
- Cost of revenue−$47.59B81.0%
- Gross profit$11.17B19.0%
- Operating costs−$7.29B12.4%
- Operating income$3.88B6.6%
- Interest, other & tax−$725.0M1.2%
- Net income$3.15B5.4%
Where FY2019 revenue went
$58.76B- Cost of revenue: $47.59B, 81% of revenue
- Net income: $3.15B, 5.4% of revenue
- R&D: $1.50B, 2.6% of revenue
- SG&A: $5.37B, 9.1% of revenue
- Other operating costs: $426.0M, 0.7% of revenue
- Interest, other & tax: $725.0M, 1.2% of revenue
Kept 5.4% as net incomeNet income $3.15B · 5.4%Other operating costs $426.0M · 0.7%Interest, other & tax $725.0M · 1.2%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2019filed December 12, 2019Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $58.76B$58.47B | +0.5% |
| Cost of Revenue | $47.59B$47.80B | −0.5% |
| Gross Profit | $11.17B$10.67B | +4.7% |
| R&D Expenses | $1.50B$1.40B | +6.8% |
| SG&A Expenses | $5.37B$5.10B | +5.3% |
| Operating Expenses | $54.88B$54.64B | +0.4% |
| Operating Income | $3.88B$3.83B | +1.2% |
| Interest Expense | $242.00M$312.00M | −22.4% |
| Net Income | $3.15B$5.33B | −40.8% |
| EPS (Basic) | $2.08$3.30 | −37.0% |
| EPS (Diluted) | $2.07$3.26 | −36.5% |
| Shares Outstanding (Basic) | 1.51B1.61B | −6.2% |
| Shares Outstanding (Diluted) | 1.52B1.63B | −6.7% |
05—Questions
Frequently Asked Questions
Why did net earnings decline so sharply in fiscal 2019?
Net earnings fell to $3.15 billion from $5.33 billion. Earnings from operations were roughly flat at $3.88 billion, but interest and other, net expense rose to $1.35 billion from $818 million. The filing attributes the increase primarily to tax indemnifications related to the termination of the tax matters agreement with Hewlett Packard Enterprise in the fourth quarter of fiscal 2019. The prior year also benefited from a $2.31 billion tax benefit, compared with a $629 million benefit in fiscal 2019.
What is the Fiscal 2020 Plan and what does it cost?
The Fiscal 2020 Plan, approved by the Board on September 30, 2019, is intended to optimize and simplify HP's operating model and cost structure, to be implemented through fiscal 2022. HP expects to reduce global headcount by approximately 7,000 to 9,000 employees through employee exits and a voluntary early retirement program, and estimates pre-tax charges of approximately $1.0 billion, about $0.9 billion of which is primarily labor costs.
How is HP's Printing business performing?
Printing net revenue decreased 3.6% to $20.07 billion in fiscal 2019. Supplies revenue fell to $12.92 billion, with the filing citing demand weakness, and printer unit volume decreased 4.8%. Commercial Hardware revenue increased 2.2%, primarily due to the acquisition of the Apogee group. Printing earnings from operations as a percentage of net revenue rose slightly to 16.0%.
What are the main legal exposures disclosed?
The most prominent item is HP's lawsuit against Oracle, where a jury awarded HP approximately $3.0 billion in damages in 2016; Oracle has appealed, and no amount has been recorded. Other matters include copyright levy proceedings in several European countries, the India Directorate of Revenue Intelligence customs proceedings seeking about $370 million plus penalties, patent infringement suits by Neodron and Slingshot Printing, and a consumer class action (Parziale) over printer supplies authentication. HP states that it was not reasonably possible that a material loss had been incurred in excess of amounts recognized.
How strong is HP's balance sheet and liquidity?
At October 31, 2019, HP held cash and cash equivalents of $4.5 billion against total debt of $5.1 billion. Stockholders' deficit was $1.19 billion. Cash from operations was $4.65 billion, and the company stated that internally generated cash flows are generally sufficient to support operations, capital expenditures, acquisitions, restructuring, debt maturities, taxes and dividends. The company also had a $4.0 billion committed revolving credit facility available until March 30, 2023.
06—Continue