01—Abstract
Summary
Summary of the 10-Q filed May 30, 2024. Cited figures are marked; the original filing is the authoritative source.
HP Inc. reported net revenue of $12.80 billiona for the three months ended April 30, 2024, down from $12.91 billion a year earlier, and $25.99 billion for the six months, down from $26.71 billion.
Net earnings were $607 millionb for the quarter (diluted EPS $0.61) versus $1.054 billion (diluted EPS $1.06) a year earlier, and $1.23 billion for the six months (diluted EPS $1.23) versus $1.52 billion. Earnings from operations rose to $952 million from $747 million in the quarter, with gross margin up to 23.6% of net revenue from 22.6%, driven mainly by lower commodity and logistics costs, favorable foreign currency impacts and Future Ready transformation savings. Prior-year results included a $105 million special termination benefit and a favorable tax benefit of $636 million in the three months ended April 30, 2023, which largely explain the lower reported net earnings this period.
Personal Systems net revenue rose 3.1% in the quarter, with PC unit volume up 6.9%, while Printing net revenue fell 7.8%, with printer unit volume down 17.1%. Cash, cash equivalents and restricted cash was $2.52 billionc at April 30, 2024, down from $3.23 billion at October 31, 2023, and total debt was $9.59 billion. The company returned $1.1 billion to shareholders in the six months through cash dividends ($0.5 billion) and share repurchases ($0.6 billion), with approximately $1.4 billion remaining under repurchase authorizations.
Management disclosed that disclosure controls and procedures were not effective due to a material weakness in internal control over financial reporting related to information technology general controls over software solutions that affect net revenue. Management states the weakness did not result in a material misstatement and is being remediated, and the filing notes that the company is a defendant in several significant patent, securities and other legal matters, including Nokia and Access Advance video codec patent suits and the Autonomy-related proceedings, in which HP states it cannot reasonably estimate potential losses for certain matters.
02—Key points
Key Highlights
- Net revenue of $12.80 billion for the quarter ended April 30, 2024, down from $12.91 billion a year earlier; net earnings of $607 million (diluted EPS $0.61) versus $1.054 billion (diluted EPS $1.06).
- Earnings from operations increased to $952 million from $747 million, with gross margin of 23.6% of net revenue versus 22.6% a year earlier.
- Personal Systems net revenue grew 3.1% in the quarter, with PC unit volume up 6.9%, while Printing net revenue fell 7.8% with printer unit volume down 17.1%.
- Cash, cash equivalents and restricted cash was $2.52 billion at April 30, 2024, down from $3.23 billion at October 31, 2023; total debt was $9.59 billion.
- Returned $1.1 billion to shareholders in the six months (cash dividends of $0.5 billion and share repurchases of $0.6 billion); about $1.4 billion remained under repurchase authorizations.
- Management reported a material weakness in internal control over financial reporting tied to IT general controls for software solutions affecting net revenue, causing disclosure controls to be deemed not effective.
- Ongoing Future Ready (Fiscal 2023 Plan) restructuring, with total costs incurred to date of $1.41 billion and an expected run-rate on track for the fiscal 2024 structural cost savings target.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2024, HP kept $0.05.
- Revenue$12.80B100.0%
- Cost of revenue−$9.78B76.4%
- Gross profit$3.02B23.6%
- Operating costs−$2.07B16.2%
- Operating income$952.0M7.4%
- Interest, other & tax−$345.0M2.7%
- Net income$607.0M4.7%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2024filed May 30, 2024Financial Statements
Q2 FY2024 against Q2 FY2023
| Line item | Q2 FY2024Q2 FY2023 | Change |
|---|---|---|
| Revenue | $12.80B$12.91B | −0.8% |
| Cost of Revenue | $9.78B$9.99B | −2.2% |
| Gross Profit | $3.02B$2.91B | +3.7% |
| R&D Expenses | $436.00M$410.00M | +6.3% |
| SG&A Expenses | $1.46B$1.40B | +4.7% |
| Operating Expenses | $2.07B$2.17B | −4.4% |
| Operating Income | $952.00M$747.00M | +27.4% |
| Interest Expense | $122.00M$153.00M | −20.3% |
| Net Income | $607.00M$1.05B | −42.4% |
| EPS (Basic) | $0.62$1.06 | −41.5% |
| EPS (Diluted) | $0.61$1.06 | −42.5% |
| Shares Outstanding (Basic) | 984.00M991.00M | −0.7% |
| Shares Outstanding (Diluted) | 990.00M998.00M | −0.8% |
05—Questions
Frequently Asked Questions
How did HP's profitability change in the quarter ended April 30, 2024?
Earnings from operations rose to $952 million from $747 million, and gross margin improved to 23.6% of net revenue from 22.6%, driven mainly by lower commodity and logistics costs, favorable foreign currency impacts and transformation savings. Net earnings fell to $607 million from $1.054 billion, largely because the prior-year period included a $636 million net tax benefit and the quarter included a $190 million tax provision.
What drove the change in revenue by segment?
Personal Systems net revenue increased 3.1% to $8.43 billion, driven by a 6.9% increase in PC unit volume, partly offset by a 3.0% decline in average selling prices. Printing net revenue decreased 7.8% to $4.37 billion, driven by a 17.1% decline in printer unit volume due to demand softness and lower Supplies revenue.
Does HP have a material weakness in its internal controls?
Yes. Management concluded that disclosure controls and procedures were not effective as of April 30, 2024 due to a material weakness in internal control over financial reporting. It relates to undue reliance on information from certain software solutions affecting net revenue without effectively designed IT general controls, specifically around user access and change management. Management states the weakness did not result in errors or a material misstatement, and remediation is in progress.
How much cash did HP return to shareholders and how much buyback capacity remains?
In the six months ended April 30, 2024, HP returned $1.1 billion to shareholders, consisting of $0.5 billion in cash dividends and $0.6 billion in share repurchases. As of April 30, 2024, approximately $1.4 billion remained under the share repurchase authorizations.
What significant legal matters does HP disclose?
HP discloses several patent suits, including Nokia's infringement claims over video coding technology and Access Advance-related suits in Germany, as well as the R2 Semiconductor litigation and the Philips patent litigation. It also discloses Autonomy-related proceedings in which HP seeks damages of more than $5 billion from former Autonomy management, with the damages ruling pending. HP states it cannot reasonably estimate potential losses for certain of these matters, and no adjustment has been recorded for the Autonomy award.
06—Continue