Hewlitt-Packard Company (HPQ)
Q2 1010 Earnings Call
May 18, 2010 5:00 pm ET
Jim Burns – Vice President Investor Relations
Mark Hurd – Chairman, Chief Executive Officer
Catherine Lesjak – Chief Financial Officer
Kathryn Huberty – Morgan Stanley
Bill Shope – Credit Suisse
Richard Gardner – Citigroup
Benjamin Reitzes – Barclays Capital
Toni Sacchonaghi – Sanford Bernstein
David Bailey – Goldman Sachs
Keith Bachman – Bank of Montreal
Shannon Cross – Cross Research
Scott Craig – BofA/Merrill Lynch
Aaron Rakers – Stifel Nicolaus
Brian Alexander – Raymond James
Previous Statements by HPQ
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Welcome to the second quarter 2010 Hewlitt-Packard earnings conference call. (Operator Instructions) I would now like to turn the presentation over to your host for today’s call, Mr. Jim Burns, Vice President of Investor Relations.
Good afternoon. Welcome to our second quarter earnings conference call with Chairman and CEO Mark Hurd, and CFO, Cathy Lesjak. This call is being webcast. A replay of the webcast will be available shortly after the call for approximately one year.
Information provided during this call may include forward-looking statements that are based on certain assumptions and are subject to a number of risks and uncertainties and actual future results may vary materially. Please refer to the risks described in HP’s SEC reports including our most recent Form 10-Q.
The financial information discussed in connection with this call including tax related items reflects estimates based on information available at this time and could differ materially from the amounts ultimately reported in HP’s Form 10-Q. 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 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 the HP investor relations webpage at
Before I turn the call over to Mark, I want to remind you that we closed the 3Com acquisition on April 12. As a result, the 3Com business contributed approximately $50 million in revenue in Q2. We are in the process of integrating 3Com into the HP networking business. We will continue to report the financial results of our networking business as part of the corporate investment segment for the remainder of this fiscal and we will begin reporting those results as part of the ESS segment beginning in FY ’11.
I’ll now turn the call over to Mark.
Good afternoon and thank you for joining us. Hewlitt-Packard had an exceptional quarter. Year over year we added $3.5 billion of growth and over $500 million of net earnings. Revenue of $30.8 billion was up 13% over the prior year. Non-GAAP EPS of $1.09 was up 27% and operating margins of 11.2% were up 80 basis points over the prior year.
Our growth this quarter was broad based. America’s and Asia Pacific each posted solid double-digit growth. Europe also grew double digits, performing better than historical seasonality. After many customer deferred hardware purchases in 2009, we are seeing strong growth in a number of our businesses.
Industry standard service grew 54%, Core growth, 31%, EC’s 21%, Storage 16%, Consumer printer hardware 16% and commercial printer hardware growth 13%. We achieved this growth while investing in sales coverage and R&D, executing our transformation initiatives and absorbing 3Com.
Our Enterprise business had solid growth this quarter fueled by ESS, which grew 31% over the prior year. We have built and acquired many assets over the recent years to serve our enterprise customers. We now have the industry’s premier personal hardware, Software and global services to deliver converged infrastructure and to manage and transform customer’s IT environments.
A good example of converged infrastructure is our Blade platform, which is the industry leader, with over 50% share. An HP Blade chassis can accommodate industry standard blades, mission critical blades, storage blades, even TC blades, all designed to maximize computing density and minimizing wiring and power consumption.
We then can virtualize the networking ports with virtual connect and for all the ports that are needed, we have cache HP networking gear, which has been significantly broadened and enhanced with the acquisition of 3Com. Add to that the Software to automate the data center and global services, and it’s clear we’re uniquely positioned to win.
Our Services business has made great progress integrating EDS and we see the results both in our pipeline of opportunities and improved margins. That being said, we still have more work to fully capture the enormous opportunity.
The Imaging and Printing group delivered a solid 8% growth with double digit revenue growth in consumer and commercial hardware, and 6% growth in supplies. IPG continues to make significant progress in placing units with high page consumption, which is ink in the office, wireless and graphics, each of which grew more than 30%.
We installed roughly 2,400 retail photo kiosks this quarter and expect roughly 7,000 placements by year-end. Managed print services had strong signings and indigo press pages grew 26%. We continue to make significant investments in this business while delivering 17.2% operating margin.
The Personal Systems group had another solid quarter, balancing revenue and profitability. We grew revenues 21% and expanded the operating margins. In Q2, we announced our intent to acquire Palm in order to enhance our intellectual property in the fast growing and profitable connected mobility space.