01—Abstract
Summary
Summary of the 10-K filed December 18, 2023. Cited figures are marked; the original filing is the authoritative source.
HP Inc. reported fiscal 2023 (year ended October 31, 2023) net revenue of $53.72 billiona, down 14.6% from $62.91 billion in fiscal 2022 (down 11.7% on a constant currency basis).
The decline was driven by demand softness and foreign currency impacts in Personal Systems and Printing, along with lower Personal Systems average selling prices. Net earnings were $3.26 billionb, or $3.26 diluted earnings per share, compared with $3.13 billion in fiscal 2022. Earnings from operations fell to $3.46 billion from $4.56 billion.
Gross margin rose 1.9 percentage points to 21.4%, mainly from a mix shift toward Printing and lower commodity and logistics costs in Personal Systems. Management said inventory ended the year at normalized levels, and it expects stabilization in Personal Systems and Printing during fiscal 2024. Net cash provided by operating activities was $3.57 billionc, versus $4.46 billion in fiscal 2022.
Total debt was $9.48 billiond at year-end, down from $11.01 billion, and cash and cash equivalents were $3.11 billion. HP returned $1.1 billion to shareholders through $1.0 billion of dividends and $0.1 billion of share repurchases, and had approximately $2.0 billion remaining under its repurchase authorizations. The Future Ready Plan (the "Fiscal 2023 Plan"), which runs through fiscal 2025, targets a reduction of 4,000 to 6,000 employees and pre-tax charges of about $1.0 billion.
Management reported that it exceeded its fiscal 2023 gross annual run-rate structural cost savings target. The company disclosed an unremediated material weakness in internal control over financial reporting, related to information technology general controls (user access and change management) over software solutions that affect net revenue. Ernst & Young issued an adverse opinion on internal control as of October 31, 2023, and management concluded that disclosure controls were not effective.
The filing states that this weakness did not result in any errors or a material misstatement. Pending litigation includes Nokia patent claims, Philips and Caltech patent suits, and a U.K. damages proceeding against former Autonomy management in which HP seeks more than $5 billion. HP is unable to estimate a loss for the Nokia matters.
02—Key points
Key Highlights
- Net revenue of $53.72 billion for fiscal 2023, down 14.6% year over year (down 11.7% on a constant currency basis), with Personal Systems revenue down 18.9% to $35.68 billion and Printing revenue down 4.6% to $18.03 billion.
- Net earnings of $3.26 billion ($3.26 diluted EPS) versus $3.13 billion in fiscal 2022; earnings from operations fell to $3.46 billion from $4.56 billion.
- Gross margin increased 1.9 percentage points to 21.4%, driven by mix shift toward Printing and lower commodity and logistics costs in Personal Systems, partly offset by currency and competitive pricing.
- Net cash provided by operating activities was $3.57 billion, down from $4.46 billion, with total debt reduced to $9.48 billion from $11.01 billion.
- Capital return of $1.1 billion in fiscal 2023 ($1.0 billion in dividends and $0.1 billion in share repurchases), with approximately $2.0 billion remaining under repurchase authorizations.
- Material weakness in internal control over financial reporting tied to IT general controls for software affecting net revenue; Ernst & Young issued an adverse opinion on internal control as of October 31, 2023.
- Future Ready Plan targets 4,000 to 6,000 headcount reductions and about $1.0 billion of pre-tax charges, running through fiscal 2025; approximately 65% of net revenue came from outside the United States.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2023, HP kept $0.06.
- Revenue$53.72B100.0%
- Cost of revenue−$42.21B78.6%
- Gross profit$11.51B21.4%
- Operating costs−$8.05B15.0%
- Operating income$3.46B6.4%
- Interest, other & tax−$193.0M0.4%
- Net income$3.26B6.1%
Where FY2023 revenue went
$53.72B- Cost of revenue: $42.21B, 79% of revenue
- Net income: $3.26B, 6.1% of revenue
- R&D: $1.58B, 2.9% of revenue
- SG&A: $5.36B, 10.0% of revenue
- Other operating costs: $1.12B, 2.1% of revenue
Kept 6.1% as net incomeNet income $3.26B · 6.1%Other operating costs $1.12B · 2.1%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2023filed December 18, 2023Financial Statements
FY2023 against FY2022
| Line item | FY2023FY2022 | Change |
|---|---|---|
| Revenue | $53.72B$62.91B | −14.6% |
| Cost of Revenue | $42.21B$50.65B | −16.7% |
| Gross Profit | $11.51B$12.26B | −6.2% |
| R&D Expenses | $1.58B$1.65B | −4.5% |
| SG&A Expenses | $5.36B$5.26B | +1.8% |
| Operating Expenses | $8.05B$7.70B | +4.5% |
| Operating Income | $3.46B$4.56B | −24.2% |
| Interest Expense | $548.00M$359.00M | +52.6% |
| Net Income | $3.26B$3.13B | +4.2% |
| EPS (Basic) | $3.29$3.02 | +8.9% |
| EPS (Diluted) | $3.26$2.98 | +9.4% |
| Shares Outstanding (Basic) | 992.00M1.04B | −4.4% |
| Shares Outstanding (Diluted) | 1.00B1.05B | −4.8% |
05—Questions
Frequently Asked Questions
Why did HP's revenue decline in fiscal 2023?
Net revenue decreased 14.6% (11.7% on a constant currency basis). The filing attributes the decline primarily to demand softness and foreign currency impacts in both Personal Systems and Printing, as well as lower Personal Systems average selling prices. Personal Systems client PC unit volume fell 14.5%, and printer unit volume fell 10.1%.
How did HP's profitability change?
Gross margin rose 1.9 percentage points to 21.4%, but earnings from operations declined to $3.46 billion from $4.56 billion because operating expenses rose as a share of revenue. Net earnings increased slightly to $3.26 billion, helped by a $326 million tax benefit, compared with a $1.19 billion tax provision in fiscal 2022.
What is the material weakness, and does it affect the financial statements?
Management identified a material weakness resulting from undue reliance on information from certain software solutions affecting net revenue, without effectively designed IT general controls over user access and change management. The filing states that it did not result in any errors or a material misstatement, but it was not remediated as of October 31, 2023. Ernst & Young issued an adverse opinion on internal control over financial reporting, and management concluded that disclosure controls were not effective.
What is HP's restructuring plan and what does it cost?
The Fiscal 2023 Plan (Future Ready Plan), approved November 18, 2022, is intended to enable digital transformation, portfolio optimization and operational efficiency through fiscal 2025. HP expects to reduce global headcount by approximately 4,000 to 6,000 employees and to incur pre-tax charges of about $1.0 billion, of which about $0.7 billion is primarily labor-related. Restructuring and other charges were $527 million in fiscal 2023.
What are the main litigation risks disclosed?
Nokia filed patent infringement complaints in October and November 2023 covering video coding standards, including a Brazilian preliminary injunction against HP Brasil; HP is unable to estimate a potential loss from these matters. Philips and Caltech patent suits remain pending, and HP is pursuing a U.K. proceeding against former Autonomy management that seeks more than $5 billion, with any recovery to be shared equally with Hewlett Packard Enterprise. No adjustment for that potential recovery has been recorded.
06—Continue