Hewlett-Packard (HPQ) reported first quarter EPS of $1.10, exceeding the Zacks Consensus estimate by 4 cents.
Revenue
Revenue for the quarter came in at $31.2 billion, an increase of 8.0% from the $28.8 billion reported in the year-ago period and up 5.0% on a currency adjusted basis. Revenue increased across all businesses excluding services, which declined 1.0% on a year-over-year basis.
The Americas reported a 9.0% increase in revenue to $13.6 billion. Revenue increased 1.0% in Europe, the Middle East and Africa (EMEA) to $12.1 billion and 26.0% in Asia-Pacific to $5.4 billion. International markets accounted for 65% of total revenue in the first quarter, with revenue in the BRIC countries (Brazil, Russia, India and China) increasing 41.0% on a year-over-year basis and accounting for 10.0% of total H-P revenue.
Results and Analysis by Segment
The HP Enterprise Business (HEB) reported revenue of $13.9 billion, up 2.6% from $13.6 billion reported in the year-ago quarter. This includes Enterprise Storage and Servers (ESS) revenue, which increased 11.0% year over year, driven by the increase in Industry Standard Server revenue, which moved up 27% year over year.
Storage revenue declined 3.0% as the midrange EVA product line was down 5%. Services revenue declined 1.0% year over year, while HP software revenue remained flat.
Personal Systems Group (PSG) revenue was $10.6 billion, up 20.0% year over year, helped by a 26.0% year-over-year increase in unit shipments. The company maintained the leading market position in PCs globally. However, notebook revenue increased 25.0%, while Desktop revenue increased 16.0%. Commercial client revenue increased 16.0% and Consumer client revenue increased 26.0%.
Imaging and Printing Group (IPG) revenue was $6.2 billion, up 4.0% year over year. Ink supplies, commercial hardware and consumer hardware also reported substantial increase. The printing market is slowly reviving and the IPG segment is focused on rolling out new products in the market to stimulate sales.
Printer unit shipments increased 16.0% for the period, with consumer and commercial printer hardware units up 18.0% and 11.0%, respectively. Consumer and commercial hardware revenue increased 4.0% and 21.0%, respectively.
HP Financial Services (HPFS) revenue was $0.7 billion, up 13.0% year over year. Financing volumes increased 30.0%, while in net portfolio assets increased 23.0%.
Operating Results
Gross margins for the quarter were 22.8%, down 60 basis points year over year. The decline in gross margin can be attributed to reduction in software and services revenue partially offsetting the strong growth in PC and printer hardware revenue.
Despite management’s efforts, total cost and expenses increased by 7.0% from the year-ago quarter, although operating cost as a percentage of revenue declined by 100 basis points. The lower operating costs are driven by structural changes that drive sustainable improvements. GAAP operating margin for the quarter was 9.6%, up from 8.7% reported in the year-ago quarter, while non-GAAP operating margin increased by 40 basis points.
GAAP diluted net earnings per share (EPS) in the first quarter were $0.96, compared with $0.75 in the prior-year period. Non-GAAP financial information excludes after-tax costs related primarily to the amortization of purchased intangibles, restructuring charges and acquisition-related charges of approximately $0.14 per share and $0.18 per share in the first fiscal quarter of 2010 and 2009, respectively. Non-GAAP EPS were $1.10, compared with $0.93 in the prior-year period.
H-P generated $2.4 billion in cash flow from operations versus $3.4 billion in the previous quarter. The company exited the quarter with a long-term debt balance of $14.0 billion, after repaying $80.0 million of debt. H-P paid a dividend of $0.08 per share in the first quarter, which resulted in a cash outflow of $189 million.
This apart, the company also utilized $2.7 billion of cash to repurchase approximately 54 million shares of common stock during the quarter. The company ended the quarter with $13.6 billion in cash and short-term investments versus $13.3 billion in the previous quarter.
Guidance
For the second quarter of fiscal 2010, H-P estimates revenue of approximately $29.4 billion to $29.7 billion, GAAP diluted EPS of $0.89 to $0.91 and non-GAAP diluted EPS of $1.03 to $1.05.
For the full year 2010, the company expects revenue of approximately $121.5 billion to $122.5 billion, up from its previous estimate of $118.0 billion to $119.0 billion. The GAAP diluted EPS is expected to be in the range of $3.79 to $3.86, up from the previous estimate of $3.65 to $3.75, and non-GAAP diluted EPS is expected to be in the range of $4.37 to $4.44, up from the previous estimate of $4.25 to $4.35.
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