When Hewlett-Packard Co. announced mixed fiscal first-quarter 2015 results and disappointing guidance last week, the market obviously wasn't impressed. Shares of the computing giant plunged almost 10% that day, even though HP owed its underperformance almost entirely to foreign currency exchange headwinds.
Nonetheless, as usual, HP management offered some much-needed insight on the company's results during its subsequent hourlong conference call with analysts. Here are five of the most important points made during that call:
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1. There's a reason currencies headwinds are hitting Hewlett-Packard hard
Whitman also noted while revenue declined 5% year over year, it would have only fallen 2% on a constant currency basis. There's only so much a U.S. company can do to offset that impact with nearly two-thirds of its revenue originating abroad.
Whitman said HP could, if it chose, fully mitigate these currency movements. But to do so "would require reducing investments in areas like innovation, key systems and tools, and placement of printer units," all of which would negatively affect the company's long-term prospects, she said. All told, that makes a strong case for HP investors to be relieved their company isn't caving to Wall Street's short-term demands.
2. Personal systems are still (mostly) leading the charge
For reference, HP's personal systems business has outperformed both the rest of the company and the industry as a whole for the better part of the last year. The latest quarter was no different, with personal systems revenue coming in flat over the same year-ago period thanks to a 21% increase in notebook sales. But it should also come as no surprise that commercial clients are a focus, as commercial revenue held back the segment by falling around 1% year over year.
Personal systems wasn't the only segment holding steady this time; HP's enterprise group revenue was also flat on a year-over-year basis, hurt by a 9% decline in business critical systems, but helped by 7% growth in industry standard servers and a surprising return to growth -- at least on a constant currency basis -- in storage sales. Revenue from every other segment continued to fall, including a 5% drop in printing, 11% in enterprise services, 5% in software, and 8% in financial services sales.
Speaking of which ...
3. The Deutsche Bank deal was a (Hewlett-Packard Enterprise) team effort
There's a reason Whitman felt the need to reiterate that HP's recently signed 10-year, multibillion-dollar agreement with Deutsche Bank was won thanks to a combined effort between its enterprise, software, cloud, and services businesses. Those segments will all be split off as part of the "Hewlett-Packard Enterprise" half of Hewlett-Packard's impending separation into two distinct entities. The other half will be called simply "HP," and will contain its personal systems and printing businesses.
4. The 2012 restructuring plan is almost complete
It's no coincidence this comment came immediately after Lesjak pointed out HP's adjusted operating profit just rose 0.3 points year over year. Part of that improvement can be chalked up to its ongoing multiyear restructuring plan. For perspective, when HP initially unveiled the plan in May 2012, it expected around 27,000 employees to exit the company -- many via an early retirement plan -- by the end of fiscal 2014. Combined with nonheadcount actions such as supply chain optimization and business process improvement, HP was aiming to generate annualized savings of $3 billion to $3.5 billion.
Of course, HP has exceeded that headcount number by a great deal so far. But even then, Lesjak said once management's revised headcount reductions are complete at the end of this year, itstillexpects to pursue incremental opportunities for operational cost improvements identified through the upcoming business separation.
5. Separation charges are about to ramp up, but ...
Finally, at nearly $2 billion between this year and next, the huge dollar amount in separation charges HP expects to incur understandably came as a shock to some investors. That's why Lesjak emphasized the "unprecedented ...size and complexity" of the separation, and put it into context by comparing those charges to Hewlett-Packard's already enormous base of annual operating costs.
In the end, if HP's split has the desired impact of helping the two resulting companies better seize their respective market opportunities, long-term investors might just find themselves looking back and laughing about the market's knee-jerk reaction to this short-term concern.
The article 5 Things Hewlett-Packard Company's Management Wants You to Know originally appeared on Fool.com.
Steve Symington has no position in any stocks mentioned. The Motley Fool owns shares of Deutsche Bank AG (USA). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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