HP reports fourth quarter 2004 results

HP today reported financial results for its fourth fiscal quarter ended Oct. 31, 2004. Fourth quarter revenue increased 8% year-over-year to $21.4 billion.

Non-GAAP(1) operating profit was $1.5 billion, with non-GAAP diluted earnings per share (EPS) of $0.41, up 14% from $0.36 in the prior-year period. Non-GAAP diluted EPS and non-GAAP net earnings include a $136 million adjustment on an after-tax basis, or $0.05 per diluted share. GAAP operating profit for the quarter was $1.3 billion. GAAP diluted EPS was $0.37 per share, up 32% from $0.28 in the prior-year period.

"During the quarter, we delivered solid revenue growth of 8% year-over-year and achieved record revenues in every business and every region. This growth, combined with excellent expense management, drove an increase in non-GAAP earnings per share of 14% and GAAP earnings per share of 32%," said Carly Fiorina, HP chairman and chief executive officer.

"On a full year basis, total revenue grew 9% year-over-year, or $7 billion, to $80 billion. We generated a record $5 billion in profit and achieved our most balanced segment performance to date. We also continued to generate strong cash flow from operations, which enabled us to make strategic acquisitions in software and services and repurchase $3.3 billion of shares.

"In addition to executing on our current business, we strengthened our competitive position during the quarter with significant new offerings in storage, blade servers, imaging and printing and digital entertainment.

"In fiscal 2005, our focus is on disciplined execution, accelerating profitable growth and leveraging our unique portfolio," said Fiorina.

Technology Solutions Group

The Technology Solutions Group consists of Enterprise Storage and Servers, Software and HP Services. The group reported revenue of $8.0 billion, up 10% from the prior-year period. Operating profit for the quarter totaled $469 million, or 5.8% of revenue. Within this group:

Enterprise Storage and Servers

Enterprise Storage and Servers reported revenue of $4.1 billion, up 7% year-over-year, and 22% sequentially. Industry-standard server shipments increased 18% year-over-year, with revenue up 16% year-over-year and 23% sequentially. Revenue in Business Critical Systems grew 3% year-over-year and 26% sequentially. Within BCS, revenue in HP-UX increased 8% year-over-year, Alpha declined 27%, and NonStop revenue increased 13%. Networked storage revenue was down 9% year-over-year, but up 16% sequentially, as the company continued to add storage sales specialists and transition product offerings. Enterprise Storage and Servers reported a quarterly operating profit of $107 million, or 2.6% of revenue, up from a loss of $208 million in the third quarter.

HP Services

HP Services revenue grew 13% year-over-year to a record $3.7 billion, reflecting continued strength in Managed Services, which grew 35% year-over-year. Customer Support grew 10% year-over-year and revenue in Consulting and Integration increased 4%. Operating profit was $367 million, representing 10.0% of revenue.

Software

Software reported record quarterly revenue of $277 million, an increase of 25% year-over-year. HP OpenView revenue increased 30% year-over-year. HP OpenCall revenue was up 17%. Software reported an operating loss of $5 million, an improvement of $17 million from the prior-year period.

Personal Systems Group

Personal Systems Group revenue grew 9% year-over-year to a record $6.5 billion. Units grew 11% year-over-year, reflecting stable average selling prices. Desktop revenue increased 6% year-over-year, with notebook revenue up 12%. Commercial revenue grew 12% over the prior-year period, while Consumer revenue grew 4%. Personal Systems reported an operating profit of $78 million, or 1.2% of revenue, the strongest profit performance since 2000.

Imaging and Printing Group

Imaging and Printing posted record quarterly revenue of $6.5 billion, up 5% year-over-year. During the quarter, HP shipped 14 million printers, the strongest volume quarter ever. Business hardware revenue grew 6% year-over-year, driven by strength in color laser, multi-function printers and digital press. Home hardware revenue decreased 2% with All-in-One unit sales growth offset by declining single-function printers and price erosion. Supplies revenue grew 8%, fueled by strong growth in color printing. Operating profit of $1.1 billion was a quarterly record and represented 16.6% of revenue.

Financial Services

HP Financial Services reported revenue of $497 million, up 8% year-over-year, reflecting HP's highest quarterly revenue in six quarters. Finance volume, a leading indicator of future revenue, reached its highest level in two years and total portfolio assets also increased over the prior-year period. Operating profit was $19 million, or 3.8% of revenue, reflecting increased reserves related to certain aged receivables.

Asset Management

Inventory ended the quarter at $7.1 billion, up $326 million from the prior quarter and up $1.0 billion year-over-year. Trade receivables increased $1.8 billion from the prior quarter to $10.2 billion. HP's dividend payment of $0.08 per share in the fourth quarter resulted in a cash use of $240 million. In addition, HP repurchased $2.2 billion of stock during the fourth quarter. HP exited the quarter with $13.0 billion in gross cash, which includes cash and cash equivalents of $12.7 billion and short- and certain long-term investments of $0.3 billion.

Outlook

HP estimates first half FY05 revenue will be in the range of $41.8 billion to $42.3 billion, and first half non-GAAP earnings per share will be in the range of $0.72 to $0.74.

The non-GAAP EPS expectations assume after-tax exclusion for charges of approximately $0.05 per share per quarter from amortization of purchased intangible assets and acquisition-related charges.

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