"Particular strenth in PC's" - HP EARNINGS UP 34 PERCENT; REVENUE UP 3 PERCENT
HP Net Earnings are 88 Cents per Share in Second Quarter
PALO ALTO, Calif., May 17, 1999 -- Hewlett-Packard Company (NYSE: HWP) today reported a 34 percent increase in net earnings, a 3 percent increase in net revenue and a 10 percent increase in orders for the 1999 fiscal year's second quarter, which ended April 30.
Net earnings this quarter were $918 million, compared with $685 million in the second quarter last year. Earnings per share (EPS) on a diluted basis(1) was 88 cents on approximately 1.05 billion shares of common stock and common-stock equivalents outstanding. This compares with diluted EPS of 65 cents on approximately 1.08 billion shares and equivalents in the second quarter last year.
"This is the third consecutive quarter that we've exceeded street expectations," said Lewis E. Platt, HP chairman and chief executive officer. "We executed well and turned in an excellent bottom line, and we're encouraged by improved order growth of 10 percent. We had solid net earnings in PCs, strong profit performance in printing and imaging, and significant profit improvement in our measurement business. Clearly, our challenge is to convert order growth into stronger growth in revenue."
Business Summary
Net revenue for the quarter was $12.4 billion, compared with $12.0 billion in the year-ago quarter. Net revenue in the United States was $5.4 billion, an increase of 2 percent compared with a year ago, while revenue from outside the United States rose 4 percent to $7.0 billion. In Europe, revenue totaled $4.5 billion, an increase of 8 percent. In Asia Pacific, revenue decreased 3 percent and was $1.9 billion. Combined revenue for Canada and Latin America was flat at $650 million.
COMPUTING AND IMAGING
Net revenue in the computing and imaging business increased 4 percent over last year's second quarter and totaled $10.5 billion.
Computer Products
Computer products revenue improved substantially. Commercial and consumer PC lines contributed to the revenue growth, with particular strength in PC servers, mobile products and home PCs. Inventory levels were excellent, driven by continued focus on operational efficiencies.
Revenues increased strongly in CD products (82xx and 75xx CD-RW), introduced in April, and there was continued growth in libraries and high-end tapes during the quarter.
Enterprise Computing
UNIX(R) system server revenue declined compared with the same quarter last year, when there was significant shipment growth. In addition, this quarter there were shipment constraints on some V-Class systems, and the volume shipments of the N-Class servers won't begin for a number of weeks. Order growth was strong, fueled by continued strong demand for high-end systems (V-Class) and excellent response to the recently introduced midrange (N-Class) product.
Services and software achieved healthy revenue growth this quarter, led by rapid expansion in the outsourcing business, new momentum in consulting and continued strong demand for mission-critical and NT-software support. In addition, there was excellent growth in HP OpenView enterprise management and Internet software businesses.
Printing and Imaging
HP's laser imaging business achieved good revenue growth, despite a tough comparison with last year's second quarter. Revenue growth was led by strong acceptance of supplies, department color printers, workgroup color printers and scanners. HP shipped more than 1 million HP ScanJet scanners, a record high, in the quarter. Workgroup monochrome revenue declined against an excellent year-ago quarter. Other categories showed slight growth.
The inkjet imaging business posted solid revenue growth, driven by strong revenue growth in supplies and increases in printer units sold. Market share increased noticeably around the world. Demand was particularly strong for DeskJet 695C, 882C and 895C printers, as well as for a new line of DesignJet large-format printers.
MEASUREMENT
Orders in the company's measurement business grew 14 percent compared with the same period a year ago, with all major businesses and geographies posting very good order increases.
Revenue from the measurement business declined 4 percent compared with last year's all-time record revenue in the second quarter. Revenue rose 13 percent compared with the first quarter of 1999.
Test and measurement orders rose 13 percent, with particular strength in communications test systems and products. Revenue in test and measurement declined 12 percent compared with a very strong quarter a year ago. The chemical-analysis business achieved 14 percent order growth and 6 percent revenue growth, with the revenue increase driven in part by very good growth in the liquid chromatography and supplies businesses.
The semiconductor products business, formerly the components business, achieved 12 percent order growth, while revenue was essentially flat compared with last year's second quarter. Growth in revenue from fiber-optic components was strong. Medical products orders rose 17 percent. Medical revenue increased 13 percent, with very good revenue increases in recently introduced cardiac ultrasound imaging products, patient-monitoring systems and automatic external defibrillators.
Costs and Expenses
Cost of goods sold this quarter was 67.1 percent of revenue, compared with 68.3 percent in the year-ago quarter and 66.9 percent in the first quarter of fiscal 1999. Without the effect of special charges in the second quarter of 1998, cost of goods sold would have been 67.6 percent of revenue.
Operating expenses rose 1 percent compared with the same quarter last year and were 24.0 percent of revenue. This compares with 24.5 percent in the second quarter of last year and 23.1 percent in the first quarter of fiscal 1999.
Asset Management
Return on assets for the quarter was 9.4 percent, compared with 9.3 percent in the year-ago quarter and 9.1 percent in the prior quarter.
Inventory was 13.3 percent of revenue, compared with 14.5 percent in the year-ago quarter and 13.4 percent in the first quarter of fiscal 1999.
As a percentage of net revenue, accounts and financing receivables were 16.3 percent. This compares with 15.9 percent in the same quarter last year and 16.0 percent in the first quarter of fiscal 1999. Net property, plant and equipment was 12.6 percent of revenue, compared with 13.9 percent in the second quarter last year and 13.0 percent in the prior quarter.
"Our continued strong performance on asset management was a key driver of strong cash generation once again this quarter," said Robert P. Wayman, HP executive vice president and chief financial officer. "Property, plant and equipment as a percentage of revenue has been declining for years and is at yet another record low this quarter."
Six-month Review
For the six months ended April 30, net earnings increased 16 percent to $1.9 billion, compared with $1.6 billion in the first half of fiscal 1998. Net earnings per share was $1.80, a 19 percent increase compared with the $1.51 the company earned in last year's first half.
Net revenue increased 2 percent over the first half of last year and totaled $24.4 billion. Net revenue in the United States was $10.6 billion, flat compared to last year's first half, while net revenue from outside the United States rose 4 percent to $13.8 billion.
Business Outlook
"We've turned in a very good profit, improved an already excellent product portfolio and managed our business well. In short, we did what we said we would do," Platt said. "These results are especially notable because they show we can remain focused even as we make progress on our plan to divide HP into two companies. For the new company created by the HP realignment, there are many opportunities in communications and life sciences. For the computing and imaging company, there are exciting prospects for our e-services strategy and all it can do to make the Internet work for customers.
"Challenges remain, however, including uncertainty about Y2K's impact on business and the transition under way in our enterprise storage business. In light of these challenges, we will remain sharply focused on profitable growth and on continuing to manage our own transformation seamlessly."
About HP
Hewlett-Packard Company -- a leading global provider of computing and imaging solutions and services for business and home -- is focused on capitalizing on the opportunities of the Internet and the proliferation of electronic services.
HP had computer-related revenue of $39.5 billion in its 1998 fiscal year. HP plans to launch a new company consisting of its industry-leading test-and-measurement, semiconductor products, chemical-analysis and medical businesses. These businesses represented $7.6 billion of HP's total revenue in fiscal 1998. With leading positions in multiple market segments, this technology-based company will focus on opportunities such as communications and life sciences.
HP has 123,000 employees worldwide and had total revenue of $47.1 billion in its 1998 fiscal year. Information about HP, its products and the company's Year 2000 program can be found on the World Wide Web at hp.com.
More information on this quarter's earnings is available at HP's Investor Information site at hp.com.
This news release contains forward-looking statements that involve risks and uncertainties that could cause results of Hewlett-Packard Company and the new company to differ materially from management's current expectations. These risks include the ability of HP to successfully manage and complete the separation into two independent companies, including the ability to retain and motivate key employees; the potential for business disruption; risks relating to the worldwide allocation of assets and people between the two companies during the process; and risks that the IPO of the new measurement company may not be completed in a timely manner or at all.
In addition, other risks that HP faces in running its operations include: the timely development, production and acceptance of new products and services and their feature sets; the challenge of managing asset levels, including inventory; the flow of products into third-party distribution channels; the difficulty of keeping expense growth at modest levels while increasing revenues; the impact on customers and suppliers as they prepare for the Year 2000; and other risks detailed from time to time in Hewlett-Packard's Securities and Exchange Commission reports, including, but not limited to, the Annual Report on Form 10-K for the year ended October 31, 1998 and Form 10-Q for the quarter ended Jan. 31, 1999. |
