01—Abstract
Summary
Summary of the 10-K filed December 10, 2020. Cited figures are marked; the original filing is the authoritative source.
HP Inc. (formerly Hewlett-Packard Company) reported fiscal 2020 net revenue of $56.64 billiona, down from $58.76 billion in fiscal 2019, a decrease of 3.6% as stated in the filing.
Net earnings were $2.84 billionb, or $2.00 per diluted share, compared with $3.15 billion and $2.07 in fiscal 2019. Gross margin declined to 18.4% from 19.0%, driven by unfavorable segment mix and lower Printing hardware margins, partly offset by Personal Systems gains. The filing attributes the revenue decline primarily to weak demand in Desktops, Supplies and Commercial Printing Hardware as offices remained closed during COVID-19, partly offset by strong Notebook demand.
Printing revenue fell 12.1% to $17.64 billionc, while Personal Systems revenue rose 0.8% to $39.00 billion, with Notebooks up 12.4%. Segment performance diverged. Personal Systems earnings from operations rose to $2.31 billion (5.9% of net revenue) from $1.90 billion, while Printing earnings from operations fell to $2.50 billion (14.1%) from $3.20 billion.
Restructuring and other charges rose to $462 milliond from $275 million, reflecting the Fiscal 2020 Plan, which the company expects to complete by the end of fiscal 2022. Operating cash flow was $4.32 billion, versus $4.65 billion in fiscal 2019, and the company issued $3.0 billion of senior notes in June 2020 while repurchasing $3.1 billion of stock. The filing states that the company's share repurchase authorization was increased to $15.0 billion in February 2020, with approximately $12.7 billion remaining as of October 31, 2020, and that HP expects repurchases of at least $1.0 billion per quarter.
Total debt was $6.2 billion at year-end. The filing also discloses legal matters, including the Oracle damages judgment of approximately $3.0 billion that HP has not recorded, and an Italian authority's final decision imposing fines totaling €10 million, which HP intends to appeal.
02—Key points
Key Highlights
- Net revenue fell 3.6% to $56.64 billion in fiscal 2020, with decline in Desktops, Supplies and Commercial Printing Hardware partly offset by Notebooks growth.
- Net earnings were $2.84 billion ($2.00 diluted EPS), down from $3.15 billion ($2.07) in fiscal 2019; gross margin fell to 18.4% from 19.0%.
- Printing earnings from operations dropped to $2.50 billion (14.1% of net revenue) from $3.20 billion, while Personal Systems earnings rose to $2.31 billion (5.9% of net revenue) from $1.90 billion.
- Printing Supplies revenue declined 10.3% amid reduced onsite office activity, and Printing net revenue fell 12.1% to $17.64 billion.
- Cash and cash equivalents were $4.9 billion and total debt was $6.2 billion; the company issued $3.0 billion of senior notes in June 2020 and repurchased $3.1 billion of common stock during the year.
- Board increased the share repurchase authorization to $15.0 billion in February 2020, with about $12.7 billion remaining; HP expects repurchases of at least $1.0 billion per quarter.
- Restructuring charges rose to $462 million under the Fiscal 2020 Plan, which targets 7,000 to 9,000 workforce reductions and is expected to be completed by fiscal 2022.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2020, HP kept $0.05.
- Revenue$56.64B100.0%
- Cost of revenue−$46.22B81.6%
- Gross profit$10.42B18.4%
- Operating costs−$6.98B12.3%
- Operating income$3.44B6.1%
- Interest, other & tax−$627.0M1.1%
- Net income$2.81B5.0%
Where FY2020 revenue went
$56.64B- Cost of revenue: $46.22B, 82% of revenue
- Net income: $2.81B, 5.0% of revenue
- R&D: $1.48B, 2.6% of revenue
- SG&A: $4.90B, 8.7% of revenue
- Other operating costs: $601.0M, 1.1% of revenue
- Interest, other & tax: $627.0M, 1.1% of revenue
Kept 5.0% as net incomeNet income $2.81B · 5.0%Other operating costs $601.0M · 1.1%Interest, other & tax $627.0M · 1.1%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2020filed December 10, 2020Financial Statements
FY2020 against FY2019
| Line item | FY2020FY2019 | Change |
|---|---|---|
| Revenue | $56.64B$58.76B | −3.6% |
| Cost of Revenue | $46.22B$47.59B | −2.9% |
| Gross Profit | $10.42B$11.17B | −6.7% |
| R&D Expenses | $1.48B$1.50B | −1.5% |
| SG&A Expenses | $4.90B$5.37B | −8.7% |
| Operating Expenses | $53.20B$54.88B | −3.1% |
| Operating Income | $3.44B$3.88B | −11.2% |
| Interest Expense | $239.00M$242.00M | −1.2% |
| Net Income | $2.81B$3.15B | −10.7% |
| EPS (Basic) | $1.99$2.08 | −4.3% |
| EPS (Diluted) | $1.98$2.07 | −4.3% |
| Shares Outstanding (Basic) | 1.41B1.51B | −6.7% |
| Shares Outstanding (Diluted) | 1.42B1.52B | −6.8% |
05—Questions
Frequently Asked Questions
How did COVID-19 affect HP's fiscal 2020 results?
The filing says COVID-19 reduced demand for in-office products as offices closed and remote work increased, lowering Desktops, Supplies and Commercial Printing Hardware sales. Demand for Notebooks and in-home printing rose partly offsetting this. Factory closures in China and Southeast Asia caused temporary supply shortages, and factories had returned to largely normalized levels by fiscal year-end.
Why did gross margin decline in fiscal 2020?
The filing attributes the decline from 19.0% to 18.4% primarily to unfavorable segment mix and lower rate in Printing hardware, partially offset by a higher rate in Personal Systems driven by favorable commodity costs.
How much is HP returning to shareholders?
In fiscal 2020 HP repurchased $3.1 billion of common stock and paid $997 million in cash dividends, with dividends declared at $0.70 per share. The board increased the repurchase authorization to $15.0 billion in February 2020, and about $12.7 billion remained as of October 31, 2020, with expected repurchases of at least $1.0 billion per quarter.
What legal matters could materially affect HP?
The filing describes numerous matters, including a 2016 jury verdict in HP's favor of about $3.0 billion against Oracle, which HP has not recorded and which remains on appeal. It also discloses multiple patent suits, consumer class actions over Dynamic Security in printers, and an Italian competition authority decision imposing €10 million in fines, which HP intends to appeal. HP states that it was not reasonably possible that a material loss exceeded the amounts recognized.
What is HP's outlook for its debt and liquidity?
HP reported cash and cash equivalents of $4.9 billion and total debt of $6.2 billion at October 31, 2020. It stated that its current cash, operating cash flow, commercial paper authorization and credit facilities are expected to be sufficient for operating needs, capital expenditures, debt service, pension funding, share repurchases and dividends. Available committed revolving facilities included $4.0 billion and a $1.0 billion 364-day facility.
06—Continue