HP Inc. (NYSE: HPQ) Today at HP’s 2023 Securities Analyst Meeting
(“SAM”), the company provided details on its strategy and
opportunities for long-term growth, along with its financial
outlook for fiscal 2024.
“HP is very well positioned to deliver long-term sustainable
growth,” said Enrique Lores, President and Chief Executive Officer,
HP Inc. “Our Future Ready plan is strengthening our core business,
accelerating our expansion in services, building new operational
capabilities, and improving our structural costs. Most importantly,
we are innovating to meet the changing needs of our customers and
we see attractive opportunities to drive profitable growth across
our business.”
Fiscal 2024 outlookFor fiscal 2024, the company
estimates GAAP diluted net EPS to be in the range of $2.75 to $3.15
and estimates non-GAAP diluted net EPS to be in the range of $3.25
to $3.65. Fiscal 2024 non-GAAP diluted net EPS estimates exclude
$0.50 per diluted share, primarily related to restructuring and
other charges, acquisition and divestiture charges, amortization of
intangible assets, non-operating retirement-related
(credits)/charges, tax adjustments and the related tax impact on
these items. The company also expects a $200 million increase
in its Future Ready plan annualized gross run rate structural cost
savings, to $1.6 billion by the end of fiscal 2025, with no change
to estimated restructuring and other charges of approximately $1.0
billion.
Based on the current environment, HP anticipates generating free
cash flow of $3.1 to $3.6 billion for fiscal 2024.
For fiscal 2024, the company indicated that it expects to return
approximately 100% of free cash flow through dividends and share
repurchases. The HP Board of Directors has approved an increase to
the planned annual dividend amount to $1.1024 per share, reflecting
a 5% increase from the prior dividend. The balance is expected to
be returned to shareholders through share repurchases.
“Our financial outlook reflects continued progress against our
strategic priorities,” said Marie Myers, Chief Financial Officer,
HP Inc. “We’re accelerating our three-year annualized gross
structural cost savings target, and we’re confident in our plans to
grow non-GAAP diluted net EPS and free cash flow in FY24 and
beyond. Our disciplined financial plan and capital allocation
strategy is designed to maximize growth and value creation.”
Webcast detailsA webcast of today’s event,
along with management presentations and other materials, is
available
at https://investor.hp.com/events/event-details/2023/HP-Securities-Analyst-Meeting/default.aspx.
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. (NYSE: HPQ) is a global
technology leader and creator of solutions that enable people to
bring their ideas to life and connect to the things that matter
most. Operating in more than 170 countries, HP delivers a wide
range of innovative and sustainable devices, services and
subscriptions for personal computing, printing, 3D printing, hybrid
work, gaming, and more. For more information, please visit
http://www.hp.com.
HP Inc. Media
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Forward-looking statementsThis document
contains forward-looking statements based on current expectations
and assumptions that involve risks and uncertainties. If the risks
or uncertainties ever materialize or the assumptions prove
incorrect, they could affect the business and results of operations
of HP Inc. and its consolidated subsidiaries which 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 statements regarding the impact
of the COVID-19 pandemic; projections of net revenue, margins,
expenses, effective tax rates, net earnings, net earnings per
share, 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, planned structural cost
reductions and productivity initiatives; any statements of the
plans, strategies and objectives of management for future
operations, including, but not limited to, our business model and
transformation, our sustainability goals, our go-to-market
strategy, the execution of restructuring plans and any resulting
cost savings (including the fiscal 2023 plan), net revenue or
profitability improvements or other financial impacts; any
statements concerning the expected development, demand,
performance, market share or competitive performance relating to
products or services; any statements concerning potential supply
constraints, component shortages, manufacturing disruptions or
logistics challenges; 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, disputes or other
litigation matters; any statements of expectation or belief as to
the timing and expected benefits of acquisitions and other business
combination and investment transactions (including the recent
acquisition of Plantronics, Inc. (“Poly”)); and any statements of
assumptions underlying any of the foregoing. Forward-looking
statements can also generally be identified by words such as
“future,” “anticipates,” “believes,” “estimates,” “expects,”
“intends,” “plans,” “predicts,” “projects,” “will,” “would,”
“could,” “can,” “may,” and similar terms.
Risks, uncertainties and assumptions that could affect our
business and results of operations include factors relating to the
impact of macroeconomic and geopolitical trends, changes and
events, including the Russian invasion of Ukraine and tension
across the Taiwan Strait and the regional and global ramifications
of these events; recent volatility in global capital markets,
increases in benchmark interest rates, the effects of inflation and
instability of financial institutions; risks associated with HP’s
international operations; the effects of the COVID-19 pandemic; the
execution and performance of contracts by HP and its suppliers,
customers, clients and partners, including logistical challenges
with respect to such execution and performance; changes in
estimates and assumptions HP makes in connection with the
preparation of its financial statements; the need to manage (and
reliance on) third-party suppliers, including with respect to
component shortages, and the need to manage HP’s global, multi-tier
distribution network, limit potential misuse of pricing programs by
HP’s channel partners, adapt to new or changing marketplaces and
effectively deliver HP’s services; HP’s ability to execute on its
strategic plans, including the previously announced initiatives,
business model changes and transformation; execution of planned
structural cost reductions and productivity initiatives; HP’s
ability to complete any contemplated share repurchases, other
capital return programs or other strategic transactions; the
competitive pressures faced by HP’s businesses; risks associated
with executing HP’s strategy and business model changes and
transformation; successfully innovating, developing and executing
HP’s go-to-market strategy, including online, omnichannel and
contractual sales, in an evolving distribution, reseller and
customer landscape; the development and transition of new products
and services and the enhancement of existing products and services
to meet evolving customer needs and respond to emerging
technological trends; successfully competing and maintaining the
value proposition of HP’s products, including supplies; challenges
to HP’s ability to accurately forecast inventories, demand and
pricing, which may be due to HP’s multi-tiered channel, sales of
HP’s products to unauthorized resellers or unauthorized resale of
HP’s products or our uneven sales cycle; integration and other
risks associated with business combination and investment
transactions; the results of our restructuring plans (including the
fiscal 2023 plan), including estimates and assumptions related to
the cost (including any possible disruption of HP’s business) and
the anticipated benefits of our restructuring plans; the protection
of HP’s intellectual property assets, including intellectual
property licensed from third parties; the hiring and retention of
key employees; disruptions in operations from system security
risks, data protection breaches, cyberattacks, extreme weather
conditions or other effects of climate change, medical epidemics or
pandemics such as the COVID-19 pandemic, and other natural or
manmade disasters or catastrophic events; the impact of changes to
federal, state, local and foreign laws and regulations, including
environmental regulations and tax laws; our aspirations related to
environmental, social and governance matters; potential impacts,
liabilities and costs from pending or potential investigations,
claims and disputes; the effectiveness of our internal control over
financial reporting and other risks that are described in HP’s
Annual Report on Form 10-K for the fiscal year ended October 31,
2022 and HP’s other filings with the Securities and Exchange
Commission.
As in prior periods, the financial information set forth in this
document, 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 Report on Form 10-K for the
fiscal year ending October 31, 2023, Annual Report on Form 10-K for
the fiscal year ending October 31, 2024, and HP’s other filings
with the Securities and Exchange Commission. The forward-looking
statements in this document are made as of the date of this
document and HP assumes no obligation and does not intend to update
these forward-looking statements.
HP’s Future Ready plan includes HP's efforts to take advantage
of future growth opportunities, including but not limited to,
investments to drive growth, investments in our people, improving
product mix, driving structural cost savings and other productivity
measures. Structural cost savings represent gross reductions in
costs driven by operational efficiency, digital transformation, and
portfolio optimization. These initiatives include but are not
limited to workforce reductions, platform simplification, programs
consolidation and productivity measures undertaken by HP, which HP
expects to be sustainable in the longer-term. These structural cost
savings are net of any new recurring costs resulting from these
initiatives and exclude one-time investments to generate such
savings. HP’s expectations on the longer-term sustainability of
such structural cost savings are based on its current business
operations and market dynamics and could be significantly impacted
by various factors, including but not limited to HP’s evolving
business models, future investment decisions, market environment
and technology landscape.
HP’s Investor Relations website at investor.hp.com 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. The content of HP’s website is not
incorporated by reference into this document or in any other report
or document HP files with the SEC, and any references to HP’s
website are intended to be inactive textual references only.
Use of non-GAAP financial informationTo
supplement HP’s consolidated condensed financial statements
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 profit,
non-GAAP operating margin, non-GAAP other income and expenses,
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 these non-GAAP financial measures to the
most directly comparable GAAP financial measures are included in
non-GAAP supplement available on HP’s investor relations website.
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 under “Use of non-GAAP financial measures”
below. This additional non-GAAP financial information is not meant
to be considered in isolation or as a substitute for net revenue,
operating expense, operating profit, operating margin, other income
and expenses, tax rate, net earnings, diluted net EPS, cash
provided by (used in) operating activities or cash, cash
equivalents and restricted cash 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 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 and divestiture
charges and amortization of intangible assets. Non-GAAP other
income and expenses is defined to exclude any amounts relating to
defined benefit plan settlement charges, non-operating retirement
related (credits)/charges and debt extinguishment costs. Non-GAAP
net earnings and non-GAAP diluted net EPS consist of net earnings
or diluted net EPS excluding all of the foregoing items, as
well as 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
separation from service and early retirement costs and related
benefits, costs of real estate consolidation and other non-labor
charges; and (ii) other charges, which includes non-recurring costs
including those as a result of information technology
rationalization efforts and transformation program management and
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 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 operating performance in other periods.
- HP incurs cost related to its acquisitions and divestitures,
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, integration and divestiture-related
costs, as well as non-cash adjustments to the fair value of certain
acquired assets such as inventory and certain compensation charges
related to cash settlement of restricted stock units and
performance-based restricted stock units towards acquisitions.
These charges related to acquisitions and divestitures are
inconsistent in amount and frequency and are significantly impacted
by the timing and nature of HP's acquisitions or divestitures. 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 operating
performance in other periods.
- 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 operating performance in
other periods.
- HP incurs debt extinguishment (benefit)/costs includes certain
(gain)/loss related to repurchase of certain of its outstanding
U.S. dollar global notes or termination of commitments under
revolving credit facilities. These (gain)/loss resulting from debt
redemption transactions are partially or more than offset by costs
such as bond repurchase premiums, bank fees, unpaid accrued
interests, etc. HP excludes these (benefit)/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 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,
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 the value of 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 comparisons to
operating performance in other periods.
- HP incurs defined benefit plan settlement charges relating to
HP pension plans. The charges are associated with the net
settlement and remeasurement resulting from voluntary lump sum
payments offered to certain vested participants and transfer of
certain pension obligations. 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 operating performance in other periods.
- HP recorded tax adjustments including tax expenses and benefits
from internal reorganizations, realizability of certain deferred
tax assets, various tax rate and regulatory changes, and tax
settlements across various jurisdictions. 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 operating performance in
other periods.
Free cash flow is a non-GAAP measure that is defined as cash
flow (used in) provided by operations activities adjusted for net
investment in leases and net investments in property, plant, and
equipment. Gross cash is a non-GAAP measure that is defined as
cash, cash equivalents and restricted cash 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,
cash equivalents and restricted cash, HP believes that gross cash
provides a helpful assessment of HP’s liquidity. Because free cash
flow includes net cash (used in) provided by operating activities
adjusted for net investment in leases and net investments in
property, plant and equipment. 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
gains/losses on interest rate swaps.
Key Growth AreasKey Growth Areas represent HP’s
businesses which management expects to grow at a rate faster than
HP’s core business with accretive margins in the longer term. HP’s
Key Growth Areas are comprised of:
- Hybrid Systems: Video conferencing
solutions, cameras, headsets, voice, and related software
capabilities
- Gaming: Gaming PCs (Omen, Victus,
etc.), HyperX and gaming accessories
- Workforce Solutions (previously
Workforce Services & Solutions): Managed services (Managed
Print Service and Device-as-a-Service), digital services and
lifecycle services
- Consumer Subscriptions: Instant Ink,
other consumer subscriptions and consumer digital services
- Industrial Graphics: Large Format
Industrial, Page Wide Press (PWP), Indigo and Page Wide Industrial
packaging solutions and supplies
- 3D & Personalization: Portfolio of additive manufacturing
solutions and supplies including end-to-end solutions such as
molded fiber, footwear and orthotics
Workforce Solutions (“WS”), now aligns to the newly created WS
organization that is focused on enabling services led product
offerings across Printing and Personal Systems. This now excludes
hardware revenues for certain transactional deals with a service
attach. Peripherals has been integrated into Gaming, and Hybrid
systems including all products and solutions acquired from
Plantronics, Inc. (“Poly”). Consumer Subscriptions was previously
known as Consumer Services.
In fourth quarter of fiscal 2022, HP had disclosed full year Key
Growth Areas revenues of “over $11 billion”. The changes to WS
reduced the previously disclosed revenues to approximately $10
billion for the fiscal year 2022.
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 and
divestiture charges and amortization of intangible assets are
excluded from non-GAAP operating margin. Non-operating
retirement-related (credits)/charges, defined benefit plan
settlement charges and debt extinguishment costs are
excluded from non-GAAP other income and expenses. In addition, all
of the foregoing items, tax adjustments and the amount of
additional taxes or tax benefits associated with each non-GAAP item
are excluded from non-GAAP net earnings and non-GAAP diluted net
EPS. These items 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
certain 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 accounts 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 each non-GAAP
financial measure to its most directly comparable GAAP measure
within a non-GAAP supplement on HP’s investor relations website,
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 total operating expense, non-GAAP
operating profit, non-GAAP operating margin, non-GAAP other income
and expenses, non-GAAP tax rate, 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 insight 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.
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