01—Abstract
Summary
Summary of the 10-Q filed February 28, 2024. Cited figures are marked; the original filing is the authoritative source.
HP Inc. reported net revenue of $13,185 milliona for the three months ended January 31, 2024, down from $13,798 million a year earlier, a decrease of 4.4% that the filing attributes mainly to demand softness and competitive pricing in products.
Despite lower revenue, net earnings rose to $622 millionb from $469 million, and diluted earnings per share were $0.62 compared with $0.47. Gross margin increased to $2,888 million, or 21.9% of net revenue versus 20.2%, which management attributes to lower commodity and logistics costs, favorable foreign currency impacts and cost savings. Earnings from operations were $935 million versus $743 million.
Personal Systems segment revenue was $8,809 millionc and Printing was $4,375 million, with Personal Systems earnings from operations of $537 million and Printing earnings from operations of $872 million. Cash flow and the balance sheet show a mixed picture. Net cash provided by operating activities was $121 million, compared with a use of $16 million in the prior-year quarter.
Cash, cash equivalents and restricted cash fell to $2,417 milliond from $3,232 million at October 31, 2023, after $500 million of share repurchases and $275 million of cash dividends paid. Total debt was $9,660 million, and total stockholders' deficit widened to $(1,640) million from $(1,069) million. Management concluded that disclosure controls and procedures were not effective because of a material weakness in internal control over financial reporting related to information technology general controls over software solutions that affect net revenue.
The filing also details ongoing litigation and contingencies, including patent disputes with Nokia, Access Advance pool members, Philips and Caltech, and an adverse February 7, 2024 judgment in Germany in the R2 Semiconductor case, which HP has appealed. HP states it is unable to reasonably estimate potential losses in several of these matters. The Fiscal 2023 Plan, under which HP expects to reduce global headcount by approximately 4,000 to 6,000 employees and incur pre-tax charges of approximately $1.0 billion, remains on track according to management.
02—Key points
Key Highlights
- Net revenue was $13,185 million, down from $13,798 million, a decrease of 4.4% (4.9% on a constant currency basis), driven by demand softness and competitive pricing in products.
- Net earnings increased to $622 million from $469 million, and diluted EPS rose to $0.62 from $0.47.
- Gross margin was $2,888 million, or 21.9% of net revenue, compared with 20.2% in the prior-year quarter, aided by lower commodity and logistics costs and cost savings.
- Personal Systems net revenue was $8,809 million, down 4.1%, while printer unit volume in Printing declined 16.5% due to demand softness.
- Operating cash flow was $121 million versus a use of $16 million a year earlier; HP returned $0.8 billion to shareholders through $500 million of share repurchases and $275 million of cash dividends paid.
- Management reported a material weakness in internal control over financial reporting tied to IT general controls over software solutions affecting net revenue, and concluded disclosure controls were not effective.
- Stockholders' deficit was $(1,640) million at January 31, 2024, and total debt was $9,660 million; approximately $1.5 billion remained under share repurchase authorizations.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q1 FY2024, HP kept $0.05.
- Revenue$13.19B100.0%
- Cost of revenue−$10.30B78.1%
- Gross profit$2.89B21.9%
- Operating costs−$1.95B14.8%
- Operating income$935.0M7.1%
- Interest, other & tax−$313.0M2.4%
- Net income$622.0M4.7%
04—Financials
Financial Highlights
Figures from 10-QQ1 FY2024filed February 28, 2024Financial Statements
Q1 FY2024 against Q1 FY2023
| Line item | Q1 FY2024Q1 FY2023 | Change |
|---|---|---|
| Revenue | $13.19B$13.80B | −4.4% |
| Cost of Revenue | $10.30B$11.01B | −6.5% |
| Gross Profit | $2.89B$2.79B | +3.6% |
| R&D Expenses | $399.00M$403.00M | −1.0% |
| SG&A Expenses | $1.38B$1.33B | +3.9% |
| Operating Expenses | $1.95B$2.04B | −4.5% |
| Operating Income | $935.00M$743.00M | +25.8% |
| Interest Expense | $116.00M$143.00M | −18.9% |
| Net Income | $622.00M$469.00M | +32.6% |
| EPS (Basic) | $0.63$0.47 | +34.0% |
| EPS (Diluted) | $0.62$0.47 | +31.9% |
| Shares Outstanding (Basic) | 995.00M989.00M | +0.6% |
| Shares Outstanding (Diluted) | 1.00B996.00M | +0.6% |
05—Questions
Frequently Asked Questions
Why did net earnings rise even though revenue fell?
Net earnings increased to $622 million from $469 million despite lower net revenue. The filing attributes the improvement mainly to higher gross margin in products, which benefited from lower commodity and logistics costs, favorable foreign currency impacts and cost savings, partly offset by competitive pricing. Operating expenses were also lower in R&D and restructuring and acquisition charges declined, while SG&A increased.
What is the material weakness HP disclosed, and what is its status?
HP identified a material weakness resulting from undue reliance on information generated from certain software solutions affecting net revenue without effectively designed information technology general controls, specifically around user access and change management. The filing states this did not result in any errors or a material misstatement. Management is designing appropriate controls, and the weakness will not be considered remediated until the enhanced controls operate for a sufficient period and testing shows they are effective.
How much cash did HP have, and how is it returning capital to shareholders?
Cash, cash equivalents and restricted cash was $2,417 million at January 31, 2024, down from $3,232 million at October 31, 2023. During the quarter HP repurchased $500 million of common stock and paid $275 million in cash dividends. The company had approximately $1.5 billion remaining under its share repurchase authorizations, and $0.55 per common share in dividends was declared in the quarter.
What major legal matters could affect HP?
The filing describes several patent disputes, including Nokia suits in the U.S. and Europe and Brazil, Access Advance pool member suits in Germany, and the Philips and Caltech cases. In the R2 Semiconductor case, the Dusseldorf Regional Court issued an adverse judgment on February 7, 2024 imposing a sales injunction in Germany, and HP has appealed. HP states it cannot reasonably estimate potential losses in these matters. The Autonomy-related damages proceedings are ongoing, and HP will share any recovery equally with Hewlett Packard Enterprise.
What is the outlook for the Fiscal 2023 Plan and cost savings?
HP's Fiscal 2023 Plan, approved in November 2022, is expected to run through fiscal year 2025 and aims at digital transformation, portfolio optimization and operational efficiency. The company expects to reduce global headcount by approximately 4,000 to 6,000 employees and to incur pre-tax charges of approximately $1.0 billion. Management said it is on track to achieve its gross annual run-rate structural cost savings target for fiscal year 2024 and its overall goal exiting fiscal year 2025.
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