HP Inc. (NYSE: HPQ) today announced a multi-year strategic and
financial value creation plan that is expected to deliver $3.25 to
$3.65 non-GAAP diluted net EPS by 2022. This significant expected
earnings growth is supported by HP’s market leadership and track
record of execution across Personal Systems, Print, and 3D Printing
& Digital Manufacturing, disciplined and sustained cost
actions, as well as a new capital return program of approximately
$16 billion during fiscal 2020 to fiscal 2022.
Under this value creation plan, HP expects to generate:
- $4.7 billion to $5.1 billion of non-GAAP operating profit in
fiscal 2022;
- $10.7 billion to $11.7 billion of cumulative free cash flow in
fiscal 2020 through fiscal 2022; and
- $1.2 billion structural cost reductions in fiscal 2022 with
flow through to non-GAAP operating profit of approximately $650
million.
“HP is out of the gate strong in Q1, with outstanding earnings
and a robust plan to create significant value for shareholders,”
said Enrique Lores, President and CEO, HP Inc. “Our three-year
financial targets reflect a company at the top of its game,
combining the industry’s best innovation with disciplined cost
management and aggressive capital returns to support a compelling
investment in both the short and long term.”
Lores added, “Our commitment to HP shareholders is unwavering
and it’s abundantly clear the revised Xerox proposal meaningfully
undervalues HP, creates significant risk and compromises the future
of our company.”
“The HP Board is united in its full support of the Company’s
strategy and team. HP has a proven track record of consistent value
creation and it is well positioned in both Print and Personal
Systems to drive operating profit growth and attractive shareholder
returns,” said Chip Bergh, Chair of HP’s Board of Directors. “Our
new capital return program enables us to optimize our balance sheet
while maintaining the appropriate capital structure for the
business.”
Utilizing HP’s Balance Sheet for HP Shareholders’
Benefit
As part of HP’s value creation plan for shareholders, HP’s Board
of Directors has authorized a capital return program that will
target the return of capital of approximately $16 billion to HP
shareholders during fiscal 2020 to fiscal 2022. This represents
approximately 50% of HP’s current market capitalization. The
Company has also increased its total share repurchase authorization
to $15 billion, up from the $5 billion share repurchase
authorization announced in October 2019.
HP expects implementation of this capital return program to
include the repurchase of at least $8 billion of HP shares over 12
months, commencing following HP’s 2020 annual meeting. This plan
builds on HP’s strong history of generating strong free cash flow
and returning capital to shareholders, with a total return of $9.1
billion over the last three years.
HP is increasing its target long-term return of capital to 100%
of free cash flow generation, unless higher return opportunities
emerge. HP intends to maintain dividend per share growth at least
in line with earnings.
HP is committed to maintaining an investment grade rating,
targeting a gross Debt-to-EBITDA ratio of 1.5x to 2.0x. HP plans to
use its cash and available debt capacity to support this capital
return program.
Cost Takeout
HP recently announced a cost reduction program that is expected
to result in $1.2 billion of gross, annualized run-rate structural
cost savings in fiscal 2022 with additional ongoing productivity
improvements of at least $1 billion.
HP today announced that it expects approximately $650 million of
these structural cost savings flow through to projected non-GAAP
operating profit growth.
Xerox Proposal: Flawed Value Exchange, Irresponsible
Capital Structure, Overstated Synergies
HP believes there is merit in industry consolidation which is
why it acquired Samsung Printing in 2017. However, consolidation
must benefit HP shareholders. The revised Xerox proposal, announced
on February 10, 2020, meaningfully undervalues HP, creates
significant risk, and compromises HP’s future.
The revised Xerox proposal:
- Exchanges HP stock for cash and Xerox stock at a fundamentally
flawed value exchange that does not compensate HP shareholders for
the value of HP executing on its strategic plan and transfers value
from HP shareholders to Xerox shareholders;
- Uses HP’s balance sheet as transaction consideration and
creates an irresponsible capital structure that would jeopardize
the future value of the combined company and constrain its ability
to invest in growth and innovation; and
- Overstates the potential synergies by including HP’s existing
plans for independent cost reductions and productivity gains.
HP is reaching out to Xerox to explore if there is a combination
that creates value for HP shareholders that is additive to HP’s
strategic and financial plan.
HP’s Board of Directors is committed to pursuing the most
value-creating path and to serving HP shareholders’ best
interests.
Driving Value Creation and Margin Expansion in Personal
Systems
In Personal Systems, which represents 68% of HP’s Q1 2020
revenue, HP today updated its long-term operating model, increasing
target operating margins to 3.5% to 5.5%.
With innovative technology and IP, HP has built a leading
position in the Personal Systems market, that is expected to grow
to over $330 billion by fiscal 2023. HP expects to capture this
growth opportunity by reinventing computing experiences, increasing
lifetime value of devices in areas such as gaming, and accelerating
services and solutions growth by expanding into adjacent
markets.
Driving Value Creation and Margin Expansion in
Print
HP is the market leader in Print with 40% unit share and the
highest operating margins in the industry.
In Print, HP is announcing today that it is establishing a
long-term target operating margin range of 16% to 18%.
HP is executing a consistent strategy to evolve its Print
business model to deliver greater choice, convenience and value to
its customers, and increasing the recurring nature of print
revenue. This includes executing on its playbook to increase share
in supplies, continuing to grow contractual revenues in consumer
and enterprise, optimizing system profitability to rebalance system
value towards hardware, and growing its graphics and 3D portfolio
to lead the analog to digital transformation.
In 3D Printing & Digital Manufacturing, HP’s decades of
innovation investment have created new businesses for the Company
and enabled a strong track record of growth. By monetizing its
highly differentiated IP, HP is extending beyond hardware to
transform manufacturing and build a complete solutions ecosystem to
capture substantial market opportunity and unlock new sources of
value.
Record of Execution and Continuing the
Momentum
HP has beat or met non-GAAP diluted net EPS guidance for all 17
quarters as a standalone company, including strong earnings growth
as separately announced today, and has beat or met free cash flow
guidance for four out of four years since HP’s separation.
Over the last three years, HP has grown revenue by $10.5
billion, grown GAAP diluted net EPS by 45%, generated $12.9 billion
in cumulative cash flow from operations and returned $9.1 billion,
or 80% of free cash flow to shareholders.
HP’s Board and management team are committed to continuing this
record of profitable growth, strong cash generation and capital
return. The Company’s strategy is focused on advancing its
leadership in Personal Systems and Print, disrupting industries
with breakthrough technologies across Graphics and 3D Printing
& Digital Manufacturing, and transforming the way it works to
continue to optimize its cost structure.
Conference Call, Webcast and Video
HP today separately announced financial results for the fiscal
quarter ended January 31, 2020.
Management will share additional information about its strategic
and financial value plan on its earnings call scheduled for 5:00
p.m. ET / 2:00 p.m. PT today.
A live audio webcast of the call will be available at
www.hp.com/investor/2020Q1Webcast.
In connection with its strategic value plan, HP has posted a
video with board and company leaders that can be accessed
at https://youtu.be/0nxkOdYtG0U.
Advisors
Goldman Sachs & Co. LLC and Guggenheim Securities, LLC are
serving as financial advisors, and Wachtell, Lipton, Rosen &
Katz is legal advisor, to HP.
Forward-Looking Statements
This document describes long-term trends and is
not about the recently completed fiscal quarter.
This document contains forward-looking
statements that involve risks, uncertainties and assumptions. If
the risks or uncertainties ever materialize or the assumptions
prove incorrect, actual results may differ materially from those
expressed or implied by such forward-looking statements and
assumptions.
All statements other than statements of
historical fact are statements that could be deemed forward-looking
statements, including but not limited to any projections of net
earnings, net earnings per share, free cash flow, operating profit,
debt to EBITDA ratio, or other financial items; any statements of
expectation or belief; any statements regarding HP’s long term
plan, future strategy, potential future share repurchases, other
potential returns of capital or any potential strategic
transactions; any statements relating to the plans, strategies and
objectives of management for future operations, including, but not
limited to, our go-to-market strategy, the execution of
restructuring plans and any resulting cost savings, including any
projections of the amount, timing or impact of cost savings or
restructuring or other charges, planned structural cost reductions
and productivity initiatives, net revenue or profitability
improvements or other financial impacts; any statements concerning
the expected development, performance, market share or competitive
performance relating to products or services; any statements
regarding current or future macroeconomic trends or events and the
impact of those trends and events on HP and its financial
performance; and any statements of assumptions underlying any of
the foregoing.
Risks, uncertainties and assumptions include
factors relating to HP’s ability to execute on its strategic plan,
including the recently announced initiatives, business model
changes and transformation; execution of planned structural cost
reductions and productivity initiatives; potential developments
involving Xerox Holdings Corporation; HP’s ability to complete any
contemplated share repurchases, other capital return programs or
other strategic transactions; the need to address the many
challenges facing HP’s businesses; the competitive pressures faced
by HP’s businesses; risks associated with executing HP’s strategy,
business model changes and transformation; successfully innovating,
developing and executing HP’s go-to-market strategy, including
online, omnichannel and contractual sales, in an evolving
distribution and reseller landscape; successfully competing and
maintaining the value proposition of HP’s products, including
supplies; the impact of macroeconomic and geopolitical trends and
events; the need to manage third-party suppliers, manage HP’s
global, multi-tier distribution network, limit potential misuse of
pricing programs by HP’s channel partners, adapt to new or changing
marketplaces and effectively deliver HP’s services; challenges to
HP’s ability to accurately forecast inventories, demand and
pricing, which may be due to HP’s multi-tiered channel, sales of
HP’s products to unauthorized resellers or unauthorized resale of
HP’s products; the protection of HP’s intellectual property assets,
including intellectual property licensed from third parties; risks
associated with HP’s international operations; the development and
transition of new products and services and the enhancement of
existing products and services to meet customer needs and respond
to emerging technological trends; the execution and performance of
contracts by HP and its suppliers, customers, clients and partners;
the hiring and retention of key employees; integration and other
risks associated with business combination and investment
transactions; the results of the restructuring plans, including
estimates and assumptions related to the cost (including any
possible disruption of HP’s business) and the anticipated benefits
of the restructuring plans; disruptions in operations from
system security risks, data protection breaches, cyberattacks,
extreme weather conditions, medical epidemics or pandemics such as
the novel coronavirus, and other natural or manmade disasters or
catastrophic events; the impact of changes in tax laws, including
uncertainties related to the interpretation and application of the
Tax Cuts and Jobs Act of 2017 on HP’s tax obligations and effective
tax rate; the resolution of pending investigations, claims and
disputes; and other risks that are described in HP’s Annual Report
on Form 10-K for the fiscal year ended October 31, 2019, and HP’s
other filings with the SEC.
Certain financial information set forth in this
document reflects estimates based on information available at this
time. While HP believes these estimates to be reasonable, these
amounts could differ materially from amounts reported in HP’s
Quarterly Reports on Form 10-Q for the fiscal quarters ended
January 31, 2020, April 30, 2020 and July 31, 2020, Annual Report
on Form 10-K for the fiscal year ended October 31, 2020, and HP’s
other filings with the Securities and Exchange Commission. HP
assumes no obligation and does not intend to update these
forward-looking statements. HP’s Investor Relations website at
http://investor.hp.com contains a significant amount of information
about HP, including financial and other information for investors.
HP encourages investors to visit its website from time to time, as
information is updated, and new information is posted. The
content of HP’s website is not incorporated by reference into this
document or in any other report or document HP files with the SEC,
and any references to HP’s website are intended to be inactive
textual references only.
Important Information
This document is not an offer to purchase or a
solicitation of an offer to sell any securities. If a tender
offer or exchange offer is commenced, HP will file with the SEC a
solicitation/recommendation statement on Schedule 14D-9. Any
solicitation/recommendation statement filed by HP that is required
to be mailed to stockholders will be mailed to HP stockholders. HP
STOCKHOLDERS ARE ADVISED TO READ HP’s SOLICITATION/RECOMMENDATION
STATEMENT ON SCHEDULE 14D-9 AND ANY OTHER RELEVANT DOCUMENTS FILED
WITH THE SEC IF AND WHEN THEY BECOME AVAILABLE BEFORE MAKING ANY
DECISION WITH RESPECT TO ANY EXCHANGE OFFER BECAUSE THEY WILL
CONTAIN IMPORTANT INFORMATION. Stockholders may obtain free copies
of the solicitation/recommendation statement on Schedule 14D-9
(when available), as well as any other documents filed by HP in
connection with any tender offer or exchange offer, without charge
at the SEC’s website at www.sec.gov.
HP intends to file a proxy statement with the
U.S. Securities and Exchange Commission (the “SEC”) in connection
with the solicitation of proxies for the 2020 Annual Meeting of
Stockholders. Any definitive proxy statement and a white proxy card
will be mailed to HP’s stockholders. HP STOCKHOLDERS ARE URGED TO
READ ANY PROXY STATEMENT AND OTHER RELEVANT MATERIALS IF AND WHEN
THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT
INFORMATION. These and other SEC filings made by HP may be obtained
(when available) without charge at the SEC’s website at www.sec.gov
and at the investor relations section of HP’s website at
http://www.hp.com. In addition, investors and security holders will
be able to obtain free copies of these documents from HP by
directing a request to Investor Relations, 1501 Page Mill Road,
Palo Alto, CA 94304, or by calling (650) 857-1501.
Certain Information Concerning
Participants
HP and certain of its directors and executive
officers may be deemed to be participants in the solicitation of
proxies under the rules of the SEC. HP stockholders may obtain
information regarding the names, affiliations and interests of HP’s
directors and executive officers in HP’s Annual Report on Form 10-K
for the year ended October 31, 2019, which was filed with the SEC
on December 12, 2019, and its proxy statement for the 2019 Annual
Meeting of Stockholders, which was filed with the SEC on February
26, 2019. To the extent holdings of HP securities have changed
since the amounts printed in the proxy statement for the 2019
Annual Meeting, such changes have been or will be reflected on
Statements of Change in Ownership on Form 4 filed with the SEC.
These documents can be obtained free of charge from the sources
indicated above. Additional information regarding the interests of
these participants in any proxy solicitation and a description of
their direct and indirect interests, by security holdings or
otherwise, will also be included in the proxy statement to be filed
by HP with the SEC in connection with the 2020 Annual Meeting, if
and when it becomes available.
About HP Inc.
HP Inc. (NYSE: HPQ) creates technology that
makes life better for everyone, everywhere. Through our product and
service portfolio of personal systems, printers and 3D printing
solutions, we engineer experiences that amaze. More information
about HP Inc. is available at www.hp.com.
Editorial contacts
HP Inc. Media
RelationsMediaRelations@hp.com
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