Hewlett-Packard (HPQ)

Q2 2012 Earnings Call

May 23, 2012 4:30 pm ET

Executives

Rob Binns

Margaret C. Whitman - Chief Executive Officer, President and Director

Catherine A. Lesjak - Chief Financial Officer and Executive Vice President

Analysts

Katy Huberty - Morgan Stanley, Research Division

Bill C. Shope - Goldman Sachs Group Inc., Research Division

A.M. Sacconaghi - Sanford C. Bernstein & Co., LLC., Research Division

Shannon S. Cross - Cross Research LLC

Brian Marshall - ISI Group Inc., Research Division

Keith F. Bachman - BMO Capital Markets U.S.

Benjamin A. Reitzes - Barclays Capital, Research Division

Presentation

Operator

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Good day, ladies and gentlemen, and welcome to the Second Quarter 2012 Hewlett-Packard Earnings Conference Call. My name is Derrick, and I'll be your conference moderator for today's call. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Mr. Rob Binns, Vice President of Investor Relations. Please proceed.

Rob Binns

Good afternoon. Welcome to our second quarter 2012 earnings conference call with Meg Whitman, HP's Chief Executive Officer; and Cathie Lesjak, HP's Chief Financial Officer. Before handing the call over to Meg, may I remind you that this call is being webcast. A replay of the webcast will be made available shortly after the call for approximately 1 year. Some information provided during this call may include forward-looking statements that involve risks, uncertainties and assumptions. If the risks or uncertainties ever materialize or the assumptions prove incorrect, the results of HP may differ materially from those expressed or implied by such forward-looking statements and assumptions. All statements, other than statements of historical facts, are statements that could be deemed forward-looking statements, including, but not limited to, any projections of revenue, margin, expenses, earnings, earnings per share, tax provisions, cash flows, share repurchases, currency exchange rates, the impact of acquisitions or other financial item; any projections of the amount, timing or impact of cost savings, restructuring charges, early retirement programs, workforce reductions or impairment charges; any statements of the plans, strategies and objectives of management for future operations; and any statements concerning the expected development, performance, market share or competitive performance relating to products or services; and any statements or assumptions underlying any of the foregoing.

A discussion of some of these risks, uncertainties and assumptions is set forth in more detail in HP's SEC report, including its most recent Form 10-Q. HP assumes no obligation and does not intend to update any such forward-looking statement. The financial information discussed in connection with this call, including any tax-related items, reflects estimates based on information available at this time and could differ materially from amounts ultimately reported in HP's second quarter Form 10-Q.

Revenue, earnings, operating margins and similar items at the company level are sometimes expressed on a non-GAAP basis and have been adjusted to exclude certain items, including amongst other things, amortization of purchased intangibles, restructuring charges and acquisition-related charges. The comparable GAAP financial information and a reconciliation of non-GAAP amounts to GAAP are included in the tables and in the slide presentation accompanying today's earnings release, both of which are available on HP's Investor Relations webpage at www.hp.com. I'll now turn the call over to Meg.

Margaret C. Whitman

Thank you, Rob, and thanks to all of you for joining us today. The second quarter marks my first 6 months at HP, and I continue to learn about the company every day. It's inspiring. You're surrounded by incredible technology, tremendous innovation, and the people are just terrific. For example, since we last spoke, I participated in TechCon, which is HP's annual internal innovation show. Think of it as the world's greatest science fair for adults, and I was just blown away. The excitement, the enthusiasm, the commitment of HP's technical and innovation community is amazing. From nanoscale-sensing technologies to the memristor, to software that can actually learn, we have an array of forward-looking technologies that are revolutionary. Without question, our innovation engine is alive and well. Now we just need to do a better job of aligning that engine with our businesses in developing a better, faster path to market.

I also recently attended the Drupa conference, which is a show held every 4 years in Düsseldorf, Germany, to showcase the very latest in commercial graphics and printing. And again, I was deeply impressed. It's a chance to see our Color Inkjet Web Press and Indigo portfolio in context. You can see customers and potential customers gravitating towards our innovation. And you clearly can see the shift from analog to digital commercial print happening right before your eyes. The market is being disrupted, and we're leading the charge. I left Drupa with a deeper appreciation for the opportunity HP has to transform that industry.

So now let's talk about HP's performance. Overall, I feel cautiously optimistic coming out of Q2. Our results appear to be stabilizing. While I wouldn't say we turned the corner, we are making progress. For starters, we once again did what we said we were going to do. Our guidance for second quarter non-GAAP diluted EPS was $0.88 to $0.91, and we delivered $0.98, beating the high end of our outlook by $0.07 a share on revenues of $30.7 billion. While earnings and revenues were both down over the prior-year period, the trajectory of the decline began to flatten in Q2, which is encouraging.

Cathie will dig deeper into the numbers and the segment performance in just a few minutes, but let me share a few top-level observations. In PSG, we delivered a solid performance. PSG held margins steady, and an uptick in the commercial business helped offset continued weakness on the consumer side. This contributed to a sequential 6.5% increase in revenue and revenue that was also up slightly year-over-year. With much less impact from the HDD shortage, we executed well and achieved a 2-point sequential gain in worldwide PC market share in calendar Q1. In the process, we reclaimed the #1 share position for commercial globally and we also took the #1 position for commercial in the U.S. from a competitor who’s held the top rank for more than 1 decade. We're absolutely committed to outstanding product design, engineering and quality, attributes that defined HP for decades. You can see that commitment in the big refresh of the PC and printing portfolio we announced in Shanghai a couple of weeks ago. The launch gave us a boost in China, where I think we're starting to regain some momentum. And speaking with customers and partners, I've heard a lot of excitement about the products we introduced, like the Spectre XT, and our new multifunction Color LaserJet Printer. Consumers love the new products and CIOs trust them in a secure work environment. They strike the perfect balance between beautiful design and the workhorse characteristics that businesses and governments require.

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