• Jeff Matthews

“HP Beats The Number!” Only In America…and North Korea, Come to Think of It.

“HPQ prints a fairly strong quarter (PC driven, partially offset by declines in printing/Autonomy) on an improvement in margins across PC’s, printing and services. More importantly, management announced a $1.7B restructuring that’s expected to result in $3.0B – $3.5B in cost savings by FY’14 (which will be reinvested into new channels/R&D), and as a result, they raised the outlook on the fiscal year, as they’re now looking for $4.05 – $4.10 in earnings power (vs. $4.00 prior)…”

That’s the summary of Wall Street’s “thinking,” such as it is, about last night’s Hewlett-Packard layoffs call—er, earnings call—and it contains so many remarkable statements you don’t know where to begin.

The “declines in…Autonomy” comment, for example, refers to the first revenue drop at Autonomy in at least 32 quarters—which, considering HP bought Autonomy for $10 billion a mere 6 months ago (telling us, at the time, Autonomy would “accelerate” its “software business momentum”) is no easy feat.

Then there’s the $1.7 billion restructuring “that’s expected to result in $3 – $3.5 billion in cost savings…which will be reinvested in new channels/R&D.” Here’s what HP said about it last night:

“As a result of productivity gains from automation, in addition to streamlining the organization, HP expects to eliminate roughly 9,000 positions over a multi-year period. The combination of these activities will allow HP to reinvest for further growth. Investment areas will include private cloud infrastructures, application services and desktop as a service. You’ll also see other new offerings…”

Oh, wait, that’s what HP’s Ann Livermore said in June 2010 about another restructuring that was going to boost margins and business reinvestment…

Here’s what HP actually said about it last night:

“What we announced was that on a long-term basis, we see the savings opportunity to be roughly $1.8 billion on an annual run-rate basis. And this is after we reinvest some of the head count savingings…”

Oh, wait, that’s what HP’s CFO said in September 2008…

You get our drift. It’s like when one “Dear Leader” in North Korea gets replaced with another “Dear Leader” and nobody in North Korea remembers that the old “Dear Leader” promised everything the new “Dear Leader” is promising, mainly because they’re too busy digging for worms for their breakfast to care.


The biggest howler in the HP layoff report, of course, is the new, “higher” earnings power as a result of this latest batch of layoffs.

HP has trained the barking seals on Wall Street to focus strictly on non-GAAP earnings, which, as we have pointed out here before, means—literally—earnings not prepared in accordance with generally accepted accounting principles.

Specifically, by leading off with non-GAAP earnings, HP shows the good stuff—revenue and gross profit, for example—from its many terrible acquisitions (Compaq and EDS, to name two) and excludes the bad stuff, such as amortization and restructuring costs associated with those businesses.

Of course, without the bad stuff—the turnaround costs and the amortization from those acquisitions—HP wouldn’t have the good stuff (revenues and gross profits). Don’t ask us how it gets to report numbers this way, but it does.

In any event, last we checked, the actual GAAP number HP buried in last night’s release was cruising in at a cool $2.25 to $2.30 per share, or almost half the non-GAAP number…and down by one-third from the previous GAAP guidance of $3.20. And in case you are wondering about cash flow, from which all good things business-wise come, HP’s second quarter cash flow from operations, according to our Bloomberg, declined almost 40%, from $3.9 billion to $2.5 billion, marking the lowest second fiscal quarter cash from operations since 2005, when revenues were one-third lower.

Only in America! And North Korea, come to think of it…


Jeff Matthews

Author “Secrets in Plain Sight: Business and Investing Secrets of Warren Buffett”

(eBooks on Investing, 2012) Available now at Amazon.com


© 2012 NotMakingThisUp, LLC

The content contained in this blog represents only the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice, and should never be relied on in making an investment decision, ever. Also, this blog is not a solicitation of business by Mr. Matthews: all inquiries will be ignored. And if you think Mr. Matthews is kidding about that, he is not. The content herein is intended solely for the entertainment of the reader, and the author.

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The content contained in this blog represents only the opinions of Mr. Matthews. This commentary in no way constitutes investment advice. It should never be relied on in making an investment decision, ever. The content herein is intended solely for the entertainment of the reader, and the author.

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