HP Inc. Reports Fiscal 2022 Third Quarter Results
HP has reported is third quarter financial results for 2022. Highlights from the release are as follows:
- Third quarter GAAP diluted net earnings per share (“EPS”) of $1.08, above the previously provided outlook of $0.91 to $0.96 per share
- Third quarter non-GAAP diluted net EPS of $1.04, within the previously provided outlook of $1.03 to $1.08 per share
- Third quarter net revenue of $14.7 billion, down 4.1% from the prior-year period
- Third quarter net cash provided by operating activities of $0.4 billion, free cash flow of $0.3 billion
- Third quarter returned $1.3 billion to shareholders in the form of share repurchases and dividends
Net revenue and EPS results
HP Inc. and its subsidiaries (“HP”) announced fiscal 2022 third quarter net revenue of $14.7 billion, down 4.1% (down 1.9% in constant currency) from the prior-year period.
“Disciplined pricing and cost management, combined with continued momentum in our key growth businesses, enabled us to deliver solid non-GAAP EPS growth while returning $1.3 billion to shareholders in Q3,” said Enrique Lores, HP President and CEO. “We are taking clear actions to mitigate near-term market headwinds and further strengthen our business for the future. I’m confident in our ability to execute against our priorities to drive long-term sustainable growth and value creation.”
Fiscal 2022 third quarter segment results
- Personal Systems net revenue was $10.1 billion, down 3% year over year (flat in constant currency) with a 6.9% operating margin. Consumer net revenue decreased 20% and Commercial net revenue increased 7%. Total units were down 25% with Notebooks units down 32% and Desktops units up 1%.
- Printing net revenue was $4.6 billion, down 6% year over year (down 5% in constant currency) with a 19.9% operating margin. Consumer net revenue was up 1% and Commercial net revenue was down 3%. Supplies net revenue was down 9% (down 9% in constant currency). Total hardware units were down 3% with Consumer units down 1% and Commercial units down 15%.
For the fiscal 2022 fourth quarter, HP estimates GAAP diluted net EPS to be in the range of $0.44 to $0.54, which includes a GAAP-only charge of approximately $0.27 towards acquisition-related charges for Poly, and non-GAAP diluted net EPS to be in the range of $0.79 to $0.89, which includes an incremental approximate $0.05 headwind driven by Poly’s debt-related expenses and other deal-related costs. Fiscal 2022 fourth quarter non-GAAP diluted net EPS estimates exclude $0.35 per diluted share, primarily related to restructuring and other charges, acquisition-related charges including charges related to Poly noted above, amortization of intangible assets, non-operating retirement-related (credits)/charges, tax adjustments and the related tax impact on these items.
For the fiscal year 2022, HP estimates GAAP diluted net EPS to be in the range of $3.46 to $3.56, which includes a GAAP-only charge of approximately $0.27 towards acquisition-related charges for Poly, and non-GAAP diluted net EPS to be in the range of $4.02 to $4.12, which includes an incremental approximate $0.05 headwind driven by Poly’s debt-related expenses and other deal-related costs. Fiscal 2022 non-GAAP diluted net EPS estimates exclude $0.56 per diluted share, primarily related to restructuring and other charges, acquisition-related charges including charges related to Poly noted above, Russia exit charges, amortization of intangible assets, non-operating retirement-related (credits)/charges, tax adjustments and the related tax impact on these items. For fiscal 2022, HP anticipates generating free cash flow in the range of $3.2 billion to $3.7 billion, inclusive of an approximately $0.3 billion headwind related to Poly acquisition costs.
HP Inc. Completes Acquisition of Poly
HP Inc. announced on August 29 that it has completed the acquisition of Poly, a leading global provider of workplace collaboration solutions. The deal is expected to accelerate HP’s strategy to create a more growth-oriented portfolio, further strengthen its industry opportunity in hybrid work solutions, and position the combined organization for long-term sustainable growth and value creation. HP expects the transaction, first announced in March, to be accretive to revenue, non-GAAP operating profit and non-GAAP EPS in FY23 post-merger.
Enrique Lores, President and CEO of HP said that, “Poly brings incredibly strong talent, differentiated technology, and a complementary go-to-market system that we believe will further strengthen our position in large and growing markets. Together, we will have vast opportunities to innovate for customers and grow our business as we continue building a stronger HP.”
The merger of HP and Poly comes as businesses and their employees are focused on finding better ways to work and collaborate in the hybrid world. Approximately 75% of office workers are investing to improve their home setups. Traditional office spaces are also being reconfigured to support hybrid work and collaboration, with a focus on meeting room solutions. Currently, there are more than 90 million rooms, of which less than 10% have video capability. As a result, the office meeting room solutions segment is expected to triple by 2024.
Poly brings industry-leading video conferencing solutions, cameras, headsets, voice and software to HP, allowing customers to create meeting equity between those in the room and those who aren’t. The combined organization will deliver a complete ecosystem of devices, software, and digital services to create premium employee experiences, improve workforce productivity, and provide enterprise customers with better visibility, insights, security, and manageability across their hybrid IT environments.
The addition of Poly will help HP to drive innovation and scale in two of its key growth areas: peripherals and workforce solutions. Peripherals represent a $110 billion segment opportunity growing 9% annually, driven by the need for more immersive experiences2. Workforce solutions represent a $120 billion segment opportunity that is growing 8% annually, as companies invest in digital services to set up, manage, and secure more distributed IT ecosystems.
With the transaction completed, Poly CEO Dave Shull will join HP as President, Workforce Services & Solutions, starting November 1. Shull will lead the newly formed organization focused on driving a more expansive growth agenda across HP’s commercial services business. He brings extensive global experience spanning technology, digital media, operational transformation, and business development to the role. Shull will join the HP executive leadership team and report to Lores.
Andy Rhodes will run the combined HP-Poly business as General Manager, Hybrid Work Solutions & Peripherals. Rhodes, who joined HP in 2018, has previously led the company’s commercial Personal Systems business and built the global peripherals organization. Prior to HP, he held a number of senior executive roles at Dell. Rhodes will continue to report to HP Personal Systems President, Alex Cho.
HP completed the deal as an all-cash transaction of $40 per share, implying a total enterprise value of approximately $3.3 billion, inclusive of Poly’s net debt. The transaction was financed through a combination of balance sheet cash and new debt.