HP Inc. Form 10-Q Summary
Reporting period: Fiscal first quarter ended January 31, 2022; comparisons are with the three months ended January 31, 2021 unless otherwise noted. Unaudited consolidated results.
Key financial metrics
| Metric | Q1 FY2022 | Prior period | Change / context |
|---|---|---|---|
| Revenue | $17.028 billion | $15.646 billion | Up 8.8% (8.2% constant currency) |
| Gross profit / margin | $3.385 billion / 19.9% | $3.324 billion / 21.2% | Margin down 1.3 percentage points |
| Operating earnings / margin | $1.359 billion / 8.0% | $1.321 billion / 8.4% | Earnings rose; margin declined |
| Net earnings | $1.086 billion | $1.068 billion | Up 1.7% |
| Diluted EPS | $0.99 | $0.83 | Weighted-average diluted shares fell to 1.094 billion from 1.293 billion |
| Operating cash flow | $1.657 billion | $1.022 billion | Increase attributed primarily to favorable working-capital changes |
| Cash and cash equivalents | $3.394 billion | $4.299 billion at October 31, 2021 | Quarter-end balance |
| Total debt | $7.1 billion | $7.5 billion at October 31, 2021 | Weighted-average borrowing rate 3.3% |
Investing cash outflow was $280 million, including $273 million of net capital investment in property and equipment. Financing cash outflow was $2.282 billion, including $1.508 billion of share repurchases and $271 million of dividends. Quarter-end current assets were $22.432 billion versus current liabilities of $30.199 billion; stockholders’ deficit was $2.328 billion.
Business performance and changes
- Personal Systems: Revenue increased 15.0% to $12.196 billion; segment operating earnings rose 26.3% to $957 million. Growth reflected higher average selling prices and commercial PC performance, partly offset by a 6.0% decline in unit volume and constrained supply.
- Printing: Revenue declined 4.2% to $4.831 billion, and segment operating earnings fell 11.9% to $879 million. Consumer and Supplies revenue declined, while Commercial revenue increased. Printer unit volume fell 27.8%, with supply constraints a major factor.
- Consolidated revenue growth came from Personal Systems, Commercial Printing, favorable pricing/mix and foreign exchange, partly offset by declines in Consumer Printing and Supplies. Higher commodity and supply-chain costs and mix shift toward Personal Systems pressured gross margin.
- By region, Americas revenue was $6.859 billion, EMEA $5.936 billion, and Asia-Pacific and Japan $4.233 billion. International revenue growth was stronger than U.S. revenue, which declined 0.3% to $5.6 billion.
Outlook, risks and notable items
- Management expected continued demand for Personal Systems and Printing in FY2022, while warning that component shortages, manufacturing disruptions and logistics challenges would continue to affect revenue and margins. No specific consolidated revenue or earnings guidance is provided in the supplied filing text.
- HP expected to repurchase at least $4.0 billion of shares in FY2022; $4.9 billion remained authorized at January 31. The company returned $1.8 billion to shareholders in the quarter through repurchases and dividends.
- Management cited COVID-19 uncertainty, inflation, tariffs, currency volatility, competitive pressures, supply-chain constraints and geopolitical developments, including Russia’s invasion of Ukraine, as risks. HP said the Ukraine situation was expected to have an unfavorable impact, but its extent was uncertain.
- HP reported $827 million in gross unrecognized tax benefits, of which up to $647 million could affect the effective tax rate if realized; it believed $117 million might be reduced within 12 months. IRS audits of 2018 and 2019 returns are ongoing.
- HP reported no reasonably possible material loss in excess of recorded litigation provisions as of January 31, 2022, while noting litigation outcomes can materially affect a particular period. A potential Autonomy-related recovery had not been awarded and was not recorded; any recovery would be shared equally with Hewlett Packard Enterprise.
- The filing described the Oracle judgment payment of approximately $4.65 billion in October 2021 and a related gain recorded in FY2021, not as a current-quarter operating item. HP stated the U.S. Supreme Court review petition remained pending and believed reversal or reduction was remote.
Important facts for investors to verify
- Whether supply availability, logistics costs and commodity inflation continue to constrain unit volumes and margins, particularly in Printing.
- Whether higher PC prices and favorable mix persist, and how Personal Systems’ unit volumes develop after the quarter’s 6.0% decline.
- Working-capital trends: inventory rose to $9.018 billion from $7.930 billion at fiscal year-end, while cash declined; assess the sustainability of the quarter’s operating cash flow.
- Planned FY2022 share repurchases, dividend payments and their effect on liquidity and the stockholders’ deficit.
- Developments in tax audits and litigation, including the Autonomy proceedings and printer-supplies matters, and any resulting cash or earnings effects.