News highlights:
Today at HP’s 2018 Securities Analyst Meeting (“SAM”), the company
provided details on its strategy and opportunities for long-term
growth, along with its financial outlook for fiscal 2019.
“We continue to deliver strong growth in earnings and cash flow,
while taking profitable share with breakthrough innovation and
operational excellence,” said Dion Weisler, President and Chief
Executive Officer, HP Inc. “I’m enormously proud of what we have
accomplished in the last twelve months. We continued to showcase
our ability to reinvent the core, make progress against our growth
initiatives, and lay the foundation for our future.”
Fiscal 2019 outlook
For fiscal 2019, the company estimates GAAP diluted net EPS to
be in the range of $2.04 to $2.14 and estimates non-GAAP diluted
net EPS to be in the range of $2.12 to $2.22. Fiscal 2019 non-GAAP
diluted net EPS estimates exclude restructuring and other charges,
acquisition-related charges, defined benefit plan settlement
charges, amortization of intangible assets, non-operating
retirement-related credits/(charges), tax adjustments and the
related tax impact on these items.
Based on the current environment, HP anticipates generating free
cash flow of at least $3.7 billion for fiscal 2019.
Long-term HP expects to return 50%–75% of annual free cash flow
to shareholders. In fiscal 2019, the company indicated that it
expects to return approximately 75% of free cash flow, with a 15%
increase in the planned quarterly dividend amount, and the balance
returned to shareholders through share repurchases.
“FY18 has been a strong year for HP,” said Steve Fieler, Chief
Financial Officer. “In FY19 we will continue to execute against our
core, growth and future strategy, driving productivity
improvements, and investing for the future to maximize shareholder
value over the long term.”
Webcast details
A webcast of today’s event, along with management presentations
and other materials, is available
at www.hp.com/investor/SAM2018. This news release contains
only a summary of some of the information being presented at
today’s event and should be read in conjunction with the management
presentations and other materials made available on that
website.
About HP Inc.HP Inc. creates technology that
makes life better for everyone, everywhere. Through our portfolio
of printers, PCs, mobile devices, solutions, and services, we
engineer experiences that amaze. More information about HP Inc.
(NYSE: HPQ) is available at www.hp.com.
Forward-looking statements
This news release contains forward-looking statements that
involve risks, uncertainties and assumptions. If the risks or
uncertainties ever materialize or the assumptions prove incorrect,
the results of HP and its consolidated subsidiaries may differ
materially from those expressed or implied by such forward-looking
statements and assumptions.
All statements other than statements of historical fact are
statements that could be deemed forward-looking statements,
including but not limited to any projections of net revenue,
margins, expenses, effective tax rates, net earnings, net EPS, cash
flows, benefit plan funding, deferred taxes, share repurchases,
foreign currency exchange rates or other financial items; any
projections of the amount, timing or impact of cost savings or
restructuring and other charges; any statements of the plans,
strategies and objectives of management for future operations,
including, but not limited to, our sustainability goals, the
execution of restructuring plans and any resulting cost savings,
net revenue or profitability improvements; any statements
concerning the expected development, performance, market share or
competitive performance relating to products or services; any
statements regarding current or future macroeconomic trends or
events and the impact of those trends and events on HP and its
financial performance; any statements regarding pending
investigations, claims or disputes; any statements of expectation
or belief, including with respect to the timing and expected
benefits of acquisitions and other business combination and
investment transactions; and any statements of assumptions
underlying any of the foregoing.
Risks, uncertainties and assumptions include the need to address
the many challenges facing HP’s businesses; the competitive
pressures faced by HP’s businesses; risks associated with executing
HP’s strategy; the impact of macroeconomic and geopolitical trends
and events; the need to manage third-party suppliers and the
distribution of HP’s products and the delivery of HP’s services
effectively; the protection of HP’s intellectual property assets,
including intellectual property licensed from third parties; risks
associated with HP’s international operations; the development and
transition of new products and services and the enhancement of
existing products and services to meet customer needs and respond
to emerging technological trends; the execution and performance of
contracts by HP and its suppliers, customers, clients and partners;
the hiring and retention of key employees; integration and other
risks associated with business combination and investment
transactions; the results of the restructuring plans, including
estimates and assumptions related to the cost (including any
possible disruption of HP’s business) and the anticipated benefits
of the restructuring plans; the impact of changes in tax laws,
including uncertainties related to the interpretation and
application of the Tax Cuts and Jobs Act of 2017 on HP's tax
obligations and effective tax rate; the resolution of pending
investigations, claims and disputes; and other risks that are
described in HP’s Annual Report on Form 10-K for the fiscal year
ended October 31, 2017, and HP’s other filings with the Securities
and Exchange Commission.
As in prior periods, the financial information set forth in this
release, including any tax-related items, reflects estimates based
on information available at this time. While HP believes these
estimates to be reasonable, these amounts could differ materially
from reported amounts in HP’s Annual Reports on Form 10-K for the
fiscal years ended October 31, 2018 and October 31, 2019 and HP’s
other filings with the Securities and Exchange Commission. HP
assumes no obligation and does not intend to update these
forward-looking statements. HP’s Investor Relations website at
www.hp.com/investor/home contains a significant amount of
information about HP, including financial and other information for
investors. HP encourages investors to visit its website from time
to time, as information is updated and new information is
posted.
Use of non-GAAP financial information
To supplement HP’s financial information presented on a
generally accepted accounting principles (“GAAP”) basis, HP
provides net revenue on a constant currency basis, non-GAAP total
operating expense, non-GAAP operating margin, non-GAAP tax rate,
non-GAAP net earnings, non-GAAP diluted net EPS, free cash flow,
gross cash and net cash (debt) financial measures. HP also provides
forecasts of non-GAAP diluted net EPS and free cash flow. These
non-GAAP financial measures are not computed in accordance with, or
as an alternative to, GAAP in the United States. Reconciliations of
each of these non-GAAP financial measures to GAAP information are
included in the slides presented at the 2018 SAM. In addition, an
explanation of the ways in which HP’s management uses these
non-GAAP measures to evaluate its business, the substance behind
HP’s decision to use these non-GAAP measures, the material
limitations associated with the use of these non-GAAP measures, the
manner in which HP’s management compensates for those limitations,
and the substantive reasons why HP’s management believes that these
non-GAAP measures provide useful information to investors is
included below. This additional non-GAAP financial information is
not meant to be considered in isolation or as a substitute for net
revenue, operating profit, operating margin, net earnings, diluted
net EPS, cash provided by operating activities or cash and cash
equivalents prepared in accordance with GAAP.
Use and economic substance of non-GAAP financial
measuresNet revenue on a constant currency basis excludes
the effect of foreign currency exchange fluctuations calculated by
translating current period revenues using monthly average exchange
rates from the comparative period and excluding any hedging impact
recognized in the current period. Non-GAAP operating margin is
defined to exclude the effects of any amounts relating to
restructuring and other charges, acquisition-related charges,
defined benefit plan settlement charges, amortization of intangible
assets and non-operating retirement-related credits/(charges).
Non-GAAP net earnings and non-GAAP diluted net EPS consist of net
earnings or diluted net EPS excluding those same charges, debt
extinguishment costs, tax adjustments and the amount of additional
taxes or tax benefits associated with each non-GAAP item. HP’s
management uses these non-GAAP financial measures for purposes of
evaluating HP’s historical and prospective financial performance,
as well as HP’s performance relative to its competitors. HP’s
management also uses these non-GAAP measures to further its own
understanding of HP’s segment operating performance. HP believes
that excluding the items mentioned above for these non-GAAP
financial measures allows HP’s management to better understand HP’s
consolidated financial performance in relation to the operating
results of HP’s segments, as HP’s management does not believe that
the excluded items are reflective of ongoing operating results.
More specifically, HP’s management excludes each of those items
mentioned above for the following reasons:
- Restructuring and other charges are (i) costs associated with a
formal restructuring plan and are primarily related to employee
termination costs and benefits, costs of real estate consolidation
and other non-labor charges; and (ii) other charges, which include
non-recurring costs that are distinct from ongoing operational
costs. HP excludes these restructuring and other charges (and any
reversals of charges recorded in prior periods) for purposes of
calculating these non-GAAP measures because HP believes that these
historical costs do not reflect expected future operating expenses
and do not contribute to a meaningful evaluation of HP's current
operating performance or comparisons to HP's operating performance
in other periods.
- HP incurs cost related to its acquisitions, which it would not
have otherwise incurred as part of its operations. The charges are
direct expenses such as third-party professional and legal fees,
and integration-related costs, as well as non-cash adjustments to
the fair value of certain acquired assets such as inventory. These
charges related to acquisitions are inconsistent in amount and
frequency and are significantly impacted by the timing and nature
of HP's acquisitions. HP believes that eliminating such expenses
for purposes of calculating these non-GAAP measures facilitates a
more meaningful evaluation of HP's current operating performance
and comparisons to HP's past operating performance.
- HP incurs charges relating to the amortization of intangible
assets. Those charges are included in HP’s GAAP earnings, operating
margin, net earnings and diluted net EPS. Such charges are
significantly impacted by the timing and magnitude of HP’s
acquisitions and any related impairment charges. Consequently, HP
excludes these charges for purposes of calculating these non-GAAP
measures to facilitate a more meaningful evaluation of HP’s current
operating performance and comparisons to HP’s operating performance
in other periods.
- Non-operating retirement-related credits/(charges) includes
certain market-related factors such as interest cost, expected
return on plan assets, amortized actuarial gains or losses, and
impacts from other market-related factors associated with HP’s
defined benefit pension and post-retirement benefit plans. The
market-driven retirement-related adjustments are primarily due to
the changes in pension plan assets and liabilities which are tied
to financial market performance and HP considers these adjustments
to be outside the operational performance of the business. Non-
operating retirement-related credits/(charges) also include certain
plan curtailments, settlements and special termination benefits
related to HP’s defined benefit pension and post-retirement benefit
plans. HP believes that eliminating such adjustments for purposes
of calculating non-GAAP measures facilitates a more meaningful
evaluation of HP's current operating performance and provides
better transparency into the segment operating results.
- HP incurred defined benefit plan settlement charges relating to
the U.S. HP pension plan. The charges are associated with the net
settlement and remeasurement resulting from voluntary lump sum
payments offered to certain terminated vested participants. HP
excludes these charges for the purposes of calculating these
non-GAAP measures to facilitate a more meaningful evaluation of
HP’s current operating performance and comparisons to HP’s
operating performance in other periods.
- HP incurred debt extinguishment costs related to the March 2018
repurchase of certain of its outstanding U.S. dollar global notes.
These costs primarily included bond repurchase premiums and losses
from fair value hedges. HP excludes these costs for the purposes of
calculating these non-GAAP measures to facilitate a more meaningful
evaluation of HP's current operating performance and comparisons to
HP's operating performance in other periods.
- Tax adjustments include U.S. tax reform adjustment and net tax
indemnification amounts.
- HP recorded U.S. tax reform adjustment as one-time charges
relating to the enactment of the Tax Cuts and Jobs Act of 2017.
These charges encompass several elements, including the reversal of
previously accrued taxes on unrepatriated overseas profits, a
one-time transition tax on accumulated overseas profits and the
revaluation of deferred tax assets and liabilities to the new U.S.
tax rate. These charges are provisional based on reasonable
estimates. Changes to these estimates, new guidance issued by
regulators and new positions taken or elections made by HP may
materially impact provision for income taxes and effective tax rate
in the period in which the adjustments are made. HP expects the
accounting for the tax effects of the Tax Cuts and Jobs Act will be
completed during the one year measurement period.
- As a part of the separation of Hewlett Packard Enterprise
Company from HP Inc. (the “Separation”), HP evaluates all tax
uncertain positions to determine the indemnification amounts under
the Tax Matters Agreement with Hewlett Packard Enterprise Company
and records the adjustments as net tax indemnifications amounts for
the quarter. As part of the Separation, HP also recorded several
Separation-related items including: the reversal of a previously
recorded valuation allowance, the write-off of specific deferred
taxes providing no continued benefit to HP and the entry of certain
Separation-related deferred tax expense.
HP excludes these adjustments for the purposes of calculating
these non-GAAP measures to facilitate a more meaningful evaluation
of HP’s current operating performance and comparisons to HP’s
operating performance in other periods.
Free cash flow is a non-GAAP measure that is defined as cash
flow from operations less net capital expenditures. Net capital
expenditures is defined as investments in property, plant and
equipment less proceeds from the sale of property, plant and
equipment. Gross cash is a non-GAAP measure that is defined as cash
and cash equivalents plus short-term investments and certain
long-term investments that may be liquidated within 90 days
pursuant to the terms of existing put options or similar rights.
HP’s management uses free cash flow and gross cash for the purpose
of determining the amount of cash available for investment in HP’s
businesses, repurchasing stock and other purposes. HP’s management
also uses free cash flow and gross cash to evaluate HP’s historical
and prospective liquidity. Because gross cash includes liquid
assets that are not included in cash and cash equivalents, HP
believes that gross cash provides a helpful assessment of HP’s
liquidity. Because free cash flow includes the effect of investment
in property, plant and equipment and proceeds from the sale of
property, plant and equipment that are not reflected in net cash
provided by operating activities, HP believes that free cash flow
provides a more accurate and complete assessment of HP’s liquidity
and capital resources. Net cash (debt) is defined as gross cash
less gross debt after adjusting the effect of unamortized
premium/discount on debt issuance, debt issuance costs and
unrealized gains/losses on fair value hedges and interest rate
swaps.
Material limitations associated with use of non-GAAP
financial measuresThese non-GAAP financial measures may
have limitations as analytical tools, and these measures should not
be considered in isolation or as a substitute for analysis of HP’s
results as reported under GAAP. Some of the limitations in relying
on these non-GAAP financial measures are:
- Items such as amortization of intangible assets, though not
directly affecting HP’s cash position, represent the loss in value
of intangible assets over time. The expense associated with this
change in value is not included in non-GAAP operating margin,
non-GAAP net earnings and non-GAAP diluted net EPS, and therefore
does not reflect the full economic effect of the change in value of
those intangible assets.
- Items such as restructuring and other charges,
acquisition-related charges, non-operating retirement-related
credits/(charges), defined benefit plan settlement charges, debt
extinguishment costs and tax adjustments that are excluded from
non-GAAP operating margin, non-GAAP net earnings and non-GAAP
diluted net EPS can have a material impact on the equivalent GAAP
earnings measure and cash flows.
- HP may not be able to immediately liquidate the short-term and
long-term investments included in gross cash, which may limit the
usefulness of gross cash as a liquidity measure.
- Other companies may calculate the non-GAAP financial measures
differently than HP, limiting the usefulness of those measures for
comparative purposes.
Compensation for limitations associated with use of
non-GAAP financial measuresHP compensates for the
limitations on its use of non-GAAP financial measures by relying
primarily on its GAAP results and using non-GAAP financial measures
only supplementally. HP also provides reconciliations of non-GAAP
financial measure to its most directly comparable GAAP measure in
other written materials that include these non-GAAP financial
measures, and HP encourages investors to review those
reconciliations carefully.
Usefulness of non-GAAP financial measures to
investorsHP believes that providing net revenue on a
constant currency basis, non-GAAP operating margin, non-GAAP tax
rate, non-GAAP total operating expense, non-GAAP net earnings,
non-GAAP diluted net EPS, free cash flow, gross cash and net cash
(debt) to investors in addition to the related GAAP financial
measures provides investors with greater transparency to the
information used by HP’s management in its financial and
operational decision making and allows investors to see HP’s
results “through the eyes” of management. HP further believes that
providing this information better enables HP’s investors to
understand HP’s operating performance and financial condition and
to evaluate the efficacy of the methodology and information used by
HP’s management to evaluate and measure such performance and
financial condition. Disclosure of these non-GAAP financial
measures also facilitates comparisons of HP’s operating performance
with the performance of other companies in HP’s industry that
supplement their GAAP results with non-GAAP financial measures that
may be calculated in a similar manner.
© Copyright 2018 HP Development Company, L.P. The information
contained herein is subject to change without notice. The only
warranties for HP Inc. products and services are set forth in the
express warranty statements accompanying such products and
services. Nothing herein should be construed as constituting an
additional warranty. HP Inc. shall not be liable for technical or
editorial errors or omissions contained herein.
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