HP Inc. — FY2020 Form 10-K Summary
Reporting period: Fiscal year ended October 31, 2020. This is an annual filing, not a standalone Q4 filing; the filing also reports October-quarter results. HP sells personal-computing products and printing hardware, supplies, services and solutions. Its reportable segments are Personal Systems, Printing and Corporate Investments.
Financial performance
| Metric | FY2020 | FY2019 | Change |
|---|---|---|---|
| Net revenue | $56.639bn | $58.756bn | Down 3.6% |
| Gross profit / gross margin | $10.437bn / 18.4% | $11.170bn / 19.0% | Margin down 0.6 percentage points |
| Operating earnings / margin | $3.462bn / 6.1% | $3.877bn / 6.6% | Down 10.7% |
| Net earnings | $2.844bn | $3.152bn | Down 9.8% |
| Diluted EPS | $2.00 | $2.07 | Down 3.4% |
| Cash from operating activities | $4.316bn | $4.654bn | Down $338m |
Net earnings were 5.0% of revenue, versus 5.4% in FY2019. The effective tax rate was 12.0%, compared with a benefit-driven negative rate of 24.9% in FY2019. FY2020 included $244m of net discrete tax benefits; FY2019 included $1.3bn, notably from audit settlements. FY2020 operating cash flow declined primarily on lower working-capital cash generation amid COVID-19 demand shifts and lower operating earnings.
Segments
- Personal Systems: Revenue rose 0.8% to $38.997bn; operating earnings increased to $2.312bn from $1.898bn, and operating margin improved to 5.9% from 4.9%. Notebook revenue grew 12.4%, while desktop revenue fell 18.6% and workstation revenue fell 24.0%. Consumer revenue increased 12.8%; commercial revenue declined 4.8%.
- Printing: Revenue fell 12.1% to $17.641bn; operating earnings declined to $2.495bn from $3.202bn, and operating margin fell to 14.1% from 16.0%. Supplies revenue declined 10.3% and commercial hardware 23.3%; consumer hardware was down 0.7%.
For the October 2020 quarter, revenue was $15.258bn versus $15.407bn a year earlier; operating earnings were $992m versus $944m, and net earnings were $668m versus $388m. Diluted EPS was $0.49 versus $0.26.
Liquidity, debt and capital returns
- At October 31, 2020, cash and cash equivalents were $4.864bn, and available-for-sale investments were approximately $332m. Total debt was $6.2bn: $674m short-term and $5.543bn long-term. The weighted-average borrowing rate was 3.9%.
- HP reported $4.0bn available under its committed revolving credit facility, $1.0bn under a 364-day facility and $725m under uncommitted credit lines. Management said available liquidity and expected cash generation should meet operating needs, planned capital spending, debt service, pension funding, dividends and authorized repurchases for the foreseeable future.
- HP issued $3.0bn of senior notes in June 2020, using part of the proceeds to repurchase and redeem existing notes. It reported a $2.228bn stockholders’ deficit, so the disclosed debt-to-equity ratio is negative and not a conventional leverage measure.
- Operating, investing and financing cash flows were $4.316bn, negative $1.016bn and negative $2.973bn, respectively. Investing outflow reflected higher investment purchases, partly offset by lower acquisition payments. Financing outflow included $3.107bn of share repurchases and $997m of dividends paid.
- HP repurchased 168m shares for $3.1bn during FY2020. At year-end, approximately $12.7bn remained under its authorization. Management said it expected repurchases of at least $1bn per quarter in coming quarters unless higher-return opportunities emerged.
Material changes, outlook and risks
- COVID-19 drove strong demand for notebooks, education devices and home-use printing, but weakened commercial PCs, office printing and graphics demand. Supply disruptions and temporary factory closures caused shortages and incremental costs; manufacturing capacity was largely normalized by year-end, though component and logistics constraints continued.
- Management’s strategy emphasizes profitable PC growth, contractual and managed printing services, digital capabilities, and cost and operating-model changes. HP did not provide a clear quantified revenue, earnings or margin forecast in the provided filing text.
- The FY2020 restructuring plan targets a reduction of approximately 7,000–9,000 employees and about $1.0bn of pretax charges, with implementation expected through FY2022. HP estimated approximately $0.5bn of future restructuring cash payments, including $0.2bn in FY2021.
- Unusual items included a $214m non-cash pension settlement charge after approximately 12,000 participants elected lump-sum payments; HP paid $2.2bn from plan assets. The Xerox unsolicited offer and proxy contest ended after Xerox terminated its offer and withdrew its director slate; HP incurred related costs.
- Legal and regulatory matters include a $6m SEC civil penalty in a 2020 settlement concerning historical disclosures about printing supplies, which HP neither admitted nor denied. Italy’s competition authority announced a €10m fine and corrective orders on December 7, 2020; HP said it intended to appeal. Other disclosed matters include patent, consumer-protection, employment, copyright-levy and tax disputes. HP said it had accrued adequate provisions and that, at October 31, 2020, a material loss beyond recorded amounts was not reasonably possible.
- Principal risks include pandemic-related demand and supply uncertainty, competitive pricing and declining print-supplies demand, reliance on suppliers and channel partners, foreign-exchange and trade/tariff exposure, cybersecurity and operational disruption, restructuring execution, litigation and tax uncertainty, and debt and credit-rating risks.
Most important facts for investors to verify
- Whether notebook strength persists as remote work and learning patterns change, and whether commercial printing recovers as offices reopen.
- Whether HP can stabilize Printing Supplies revenue, market share and margins amid lower usage, price sensitivity and non-original supplies competition.
- Progress and realized savings from the FY2020 restructuring, including workforce reductions, execution costs and reinvestment in digital capabilities.
- Cash generation, working-capital and liquidity trends, alongside debt maturities, share repurchases and dividend commitments.
- Developments in the Italian appeal and other material litigation, regulatory proceedings, tax audits and unresolved contingencies.