HP stock slumps 5% thanks to a miss on revenue, and a bleak outlook

HP reported $0.92 adjusted EPS vs. expected $0.91.

So that's a beat.

And it reported revenue of $26.8 billion vs. expected revenue of $27.2 billion.

That's a miss.

Analysts were actually looking for a modest increase in EPS over the year-ago quarter (1 cent) and an almost 3% decline in sales.

The stock is down 5% in after hours trading thanks to soft guidance. HP says next quarter it expects non-GAAP EPS to come in at of $0.84 to $0.88. Analysts were expecting $0.96. HP is blaming the currency foreign exchange rate, saying that will drag next-quarter's EPS down by about 9 cents.

As for this quarter, revenue for just about every business unit was down or flat over the year-ago quarter.

Earlier today, HP released some good news. It won a 10-year "multi-billion" deal with Deutsche Bank to provide all kinds of updated tech, including software, storage and a dedicated data center built with HP's cloud technology Helion. Helion is HP's version of an open-source cloud computing operating system called Openstack.

In other words, HP will be helping Deutsche Bank build what's known as a "private cloud." That's when a company uses the same technology used by the big internet cloud computing hosting providers in its own data center. It helps a company use its IT systems more efficiently.

Meanwhile, there was also word this week of some management changes in HP's management. Marten Mickos, the former Eucalyptus CEO who became HP's top cloud guy in September when HP bought Eucalyptus, is trimming his responsibilities, according to Gigaom.

Bill Hilf will take on product strategy, Kerry Bailey will lead sales, and Mark Interrante will head up engineering. It's now unclear what role Mickos at HP Enterprise will have once HP splits into two companies.

Here's the earnings press release:

PALO ALTO, CA--(Marketwired - Feb 24, 2015) - HP (NYSE: HPQ)

• First quarter net revenue of $26.8 billion, down 5% from the prior-year period and down 2% on a constant currency basis
• First quarter non-GAAP diluted net earnings per share of $0.92, up 2% from the prior-year period and within the previously provided outlook of $0.89 to $0.93 per share
• First quarter GAAP diluted net earnings per share of $0.73, down 1% from the prior-year period and within the previously provided outlook of $0.72 to $0.76 per share
• First quarter cash flow from operations of $744 million, down 75% from the prior-year period
• Returned $1.9 billion to shareholders in the form of share repurchases and dividends in the first quarter

HP fiscal 2015 first quarter financial performance

Information about HP's use of non-GAAP financial information is provided under "Use of non-GAAP financial information" below.

HP today announced financial results for its fiscal 2015 first quarter ended January 31, 2015.

First quarter net revenue of $26.8 billion was down 5% from the prior-year period and down 2% on a constant currency basis.

First quarter GAAP diluted net earnings per share (EPS) was $0.73, down from $0.74 in the prior-year period and within its previously provided outlook of $0.72 to $0.76. First quarter non-GAAP diluted net EPS was $0.92, up from $0.90 in the prior-year period and within its previously provided outlook of $0.89 to $0.93. First quarter non-GAAP net earnings and non-GAAP diluted net EPS exclude after-tax costs of $339 million and $0.19 per diluted share, respectively, related to the amortization of intangible assets, restructuring charges, separation costs, and acquisition-related charges.

"With the first quarter of fiscal 2015 now behind us, the HP turnaround remains on track," said Meg Whitman, chairman, president and chief executive officer, HP. "We grew operating profit margins across all of our major business segments, increased investment in innovation, and executed well across key areas of our portfolio and in our separation activities. Our progress continues as we head into Q2."

Outlook
The US dollar has strengthened considerably since HP last provided an FY15 outlook in November, 2014. As is the case with many US based companies, this currency challenge is having a significant impact on HP's financial outlook.

For the fiscal 2015 second quarter, HP estimates non-GAAP diluted net EPS to be in the range of $0.84 to $0.88, reflecting an estimated currency impact of $0.09. HP expects GAAP diluted net EPS to be in the range of $0.57 to $0.61, reflecting an estimated currency impact of $0.09. Fiscal 2015 second quarter non-GAAP diluted net EPS estimates exclude after-tax costs of approximately $0.27 per share, related to separation costs, the amortization of intangible assets, restructuring charges and acquisition-related charges.

For fiscal 2015, HP estimates non-GAAP diluted net EPS to be in the range of $3.53 to $3.73, reflecting an estimated currency impact of $0.30. Absent the impact of currency, the range is in line with HP's prior forecast. HP expects GAAP diluted net EPS to be in the range of $2.03 to $2.23, reflecting an estimated currency impact of $0.30. Fiscal 2015 non-GAAP diluted net EPS estimates exclude after-tax costs of approximately $1.50 per share, related to separation costs, the amortization of intangible assets, restructuring charges and acquisition-related charges.

"While we were able to manage the impact of currency in the quarter and deliver earnings as expected, we believe the impact on FY15 will be significantly greater than we anticipated in November," Whitman added. "We'll work hard to offset these impacts through re-pricing and productivity, but fully mitigating currency movements of this size would require reducing investments and mortgaging our future. We won't do that."

Asset management
HP generated $744 million in cash flow from operations in the first quarter, down 75% from the prior-year period. Inventory ended the quarter at $6.6 billion, up 4 days year over year to 29 days. Accounts receivable ended the quarter at $12.3 billion, down 2 days year over year to 41 days. Accounts payable ended the quarter at $14.9 billion, up 13 days year over year to 65 days. HP's dividend payment of $0.16 per share in the first quarter resulted in cash usage of $304 million. HP also utilized $1.6 billion of cash during the quarter to repurchase approximately 41.1 million shares of common stock in the open market. HP exited the quarter with $13.3 billion in gross cash.

Fiscal 2015 first quarter segment results

• Personal Systems revenue was flat year over year with a 3.7% operating margin. Commercial revenue decreased 1% and Consumer revenue increased 2%. Total units were up 9% with Notebooks units up 21% and Desktops units down 7%.
• Printing revenue was down 5% year over year with a 19.2% operating margin. Total hardware units were down 4% with Commercial hardware units flat and Consumer hardware units down 6%. Supplies revenue was down 5%.
• Enterprise Group revenue was flat year over year with a 15.6% operating margin. Industry Standard Servers revenue was up 7%, Storage revenue was flat, Business Critical Systems revenue was down 9%, Networking revenue was down 11% and Technology Services revenue was down 5%.
• Enterprise Services revenue was down 11% year over year with a 3.0% operating margin. Application and Business Services revenue was down 11%, and Infrastructure Technology Outsourcing revenue declined 11%.
• Software revenue was down 5% year over year with an 18.0% operating margin. License revenue was down 16%, support revenue was flat, professional services revenue was down 7% and software-as-a-service (SaaS) revenue was flat.
• HP Financial Services revenue was down 8% year over year with a 1% decrease in net portfolio assets and a 14% increase in financing volume. The business delivered an operating margin of 11.2%.