Wednesday, 17 August 2005

HP's Q3 results

The following is from our favourite guest blogger f(Richard). It's his Q3 summary, produced by combining the "consolidated condensed statement of earnings" and the "segment information". Enjoy...

Given the exceptionally low [net] earnings this quarter - see next para - it's pretty meaningless to try to derive even a very rough valuation from the 3 (sic) cents diluted EPS for the quarter. (If you were to try, you'd probably value HP shares at less than $3 (sic) dollars each.)

Of course, it's that horrible $960 million tax charge that's screwing things up. $788 million of it is "a tax adjustment resulting from HP's decision in the third quarter to repatriate, in the third and fourth quarters, $14.5 billion in cash from foreign earnings". (As I understand it, HP is taking advantage of the American Jobs Creation Act to bring into the US, money made by foreign subsidiaries, without having to pay the normally high US rates of tax on it.)

Segment Net revenue Earnings from
operations

Imaging and printing 5,913 771
Personal systems 6,386 163
Enterprise storage and servers 3,999 150
Software 249 (40)
HP Services 3,837 256
Financing 489 58

Restructuring (112)
Acquisition related
Amortization (168)
Eliminations/other (233) (45)
Net interest and other 119
Taxes (960)

Total 20,759 73
In the past, repatriated earnings were taxed quite heavily by the US tax authorities. But under the provisions contained in the American Jobs Creation Act, repatriated earnings are taxed at a much lower rate - provided they are used in certain "approved" ways. This reduced tax rate has prompted HP to repatriate more earnings than it would otherwise have done. (And while the tax rate has been reduced, HP has repatriated such a humungous amount, that the tax due is itself a very large amount: $788 million.)

I thought the following is a good example of the assumption that a change in a company's fortunes is always necessarily a direct consequence of a change in the company's senior management. What we can't know for sure is what HP's results would have been if Carly had still been in charge, so it's risky to assume that Mark Hurd was responsible for the improved results. It's excepted from this AP story:
In the first full quarter under CEO Mark Hurd, the company reported higher sales in all its major businesses -- computers, printers and services. It also predicted the momentum would continue in the current quarter as a corporate restructuring continues. "I expected to see improvements out of HP under the new management, but this is more and sooner," said Cindy Shaw, an analyst at Moors & Cabot Capital Markets. "I thought it would take Mark Hurd a lot longer to show tangible improvements like this."
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