HP Reports Strong Revenue and Profit Growth - Company Financial Information

Edge: Work-Group Computing Report, May 22, 2000

Hewlett-Packard Company (NYSE: HWP) Tuesday announced second fiscal quarter results, reporting EPS of 87 cents, and revenue and earnings growth of 15 percent and 17 percent, respectively, before certain equity gains and charges.

Revenue growth from continuing operations was 15 percent for the second fiscal quarter, ending April 30, 2000, compared with 4 percent revenue growth from continuing operations in the second quarter of last year. Adjusted for currency effects, revenue growth was 17 percent. Net revenue from continuing operations was $12.0 billion, compared with $10.5 billion in last year's second quarter.

EPS (earnings per share) from continuing operations(1) was 87 cents on a diluted basis(2) before expenses related to HP's Enhanced Early Retirement program, the spin-off of Agilent Technologies, the incremental effect of Stock Appreciation Rights (SARs) and certain equity gains during the quarter. Including these items, EPS was 79 cents per share, on a diluted basis, on approximately 1.04 billion shares of common stock and common-stock equivalents outstanding.

Adjusted for these items, net earnings grew 17 percent to $899 million from continuing operations for the second quarter of 2000. This compares with reported net earnings of $766 million and EPS from continuing operations of 73 cents in the second quarter of last year.

"This quarter's terrific result is linked directly to our reinvention efforts," said Carly Fiorina, HP president and chief executive officer. "We are delivering the growth we promised, sharpening our focus on customers and using our global presence to accelerate our win rate. Operationally, we're stronger, more efficient and more effective. We held the line on expenses, which grew at an adjusted rate of 8 percent over last year.

"We are confident about our momentum going forward. We've revitalized our UNIX business, posting strong results with our restructured and re-energized sales force. Our PC business grew faster than any other top-tier PC player in this first calendar quarter, with unit growth of 57 percent, almost triple that of the overall market rate of 20 percent. We're also delighted with the progress in our notebook business, which posted an outstanding 180 percent and 248 percent in revenue and unit growth, respectively. And our broadbased consumer business again posted 30 percent revenue growth, further validating our brand and distribution strategies.

"Our e-services strategy is accelerating services and product growth, and we're leveraging that strategy across our businesses. For example, we're investing in products, technologies and alliances that leverage our core printing franchise to transform the way people use printers and imaging devices. And we're creating new cost efficiencies for HP by adopting the same e-services strategies for our own business that we are recommending for our customers. In short, our reinvention efforts across all aspects of our business are beginning to translate into consistent and profitable double-digit growth on an ongoing basis."

Net revenue in the United States was $5.3 billion, an increase of 17 percent compared with the year-ago quarter. Revenue from outside the United States, which was 56 percent of the company's total this quarter, rose 14 percent to $6.7 billion. In Europe, revenue was $4.2 billion, an increase of 5 percent. In Asia Pacific, revenue increased 37 percent to $1.7 billion. In Latin America, revenue increased 30 percent to $0.5 billion.

Imaging and Printing Systems

The imaging and printing segment consists of laser and inkjet printing and imaging devices and corresponding supplies. This segment grew 13 percent in revenue year over year before currency effects and channel adoption of HP's Automatic Inventory Replenishment (AIR) program, which reduced reported revenue growth to 9 percent. The AIR program, which reduced channel inventories, is designed to enhance HP's already strong supply-chain strategy.

Supplies led the growth in imaging and printing. HP PhotoSmart cameras and printers, and all-in-one products fueled the exceptional result in the home/consumer category. Personal printers and scanners continued to achieve excellent unit growth, with the continued shift to low-end products driving supplies. Office products experienced strong growth in the color segment, offset by a continued shift away from personal monochrome office lasers.

Computing Systems

The computing systems segment -- which consists of a broad range of systems and solutions for business and consumers, including workstations, desktops, mobile computers, UNIX system and PC servers, storage and software solutions -- grew 19 percent year over year in revenue.

UNIX server revenue and order growth were up 26 percent and 32 percent, respectively. Growth in the midrange category, where HP is the market leader, was driven by the N-class, which posted its best quarter since its launch a year ago March. Weakness in the V-class server line was expected, in anticipation of the launch later this year of the high-end Superdome product, which is aimed at the $1 million plus category. Enterprise-storage revenue was down from the same period last year, as expected, but HP ended the quarter with a significant backlog of orders. The software business, fueled by strength in HP OpenView networking and systems management solutions and security offerings, posted healthy growth.