HP 2014 Annual Report Download - page 52

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
The following provides an overview of our key financial metrics by segment for fiscal 2014:
Printing and Personal
Systems Group
HP Personal Enterprise Enterprise Corporate
Consolidated Systems Printing Total Group Services Software HPFS Investments(2)
Dollars in millions, except per share amounts
Net revenue(1) . $111,454 $ 34,303 $22,979 $ 57,282 $ 27,814 $ 22,398 $ 3,933 $ 3,498 $ 302
Year-over-year
change % . . (0.8)% 6.6% (3.8)% 2.2% (1.0)% (6.9)% (2.2)% (3.6)% NM
Earnings from
operations(1) . $ 7,185 $ 1,270 $ 4,185 $ 5,455 $ 4,008 $ 803 $ 872 $ 389 $ (199)
Earnings from
operations
as a % of
net revenue 6.4% 3.7% 18.2% 9.5% 14.4% 3.6% 22.2% 11.1% NM
Year-over-year
change
percentage
points .... 0.0pts 0.7pts 1.7pts 0.7pts (0.8) pts 0.8pts 0.6pts 0.1pts NM
Net earnings . $ 5,013
Net earnings
per share
Basic .... $ 2.66
Diluted . . . $ 2.62
(1) HP consolidated net revenue excludes intersegment net revenue and other. Segment earnings from operations exclude corporate
and unallocated costs, stock-based compensation expense, amortization of intangible assets, restructuring charges and acquisition-
related charges.
(2) ‘‘NM’’ represents not meaningful.
HP net revenue declined 0.8% (decreased 0.4% on a constant currency basis) in fiscal 2014 as
compared to fiscal 2013. The leading contributors to the HP net revenue decline were key account
runoff in ES and lower Printing supplies volume. Partially offsetting the net revenue decline was growth
in Personal Systems from commercial personal computers (‘‘PCs’’), which experienced growth across all
product categories, along with growth in consumer notebooks. HP’s gross margin increased by
0.8 percentage points in fiscal 2014 due primarily to service delivery efficiencies and improvements in
underperforming contracts in ES and favorable currency impacts from the Japanese Yen and continued
cost structure improvements in Printing. We continue to experience gross margin pressures resulting
from a competitive pricing environment across our hardware portfolio. HP’s operating margin was flat
for fiscal 2014 as compared to fiscal 2013 due to the gross margin increase, improved business
performance primarily in Printing, ES and Personal Systems, and lower intangible asset amortization,
offset by higher restructuring charges, investments in research and development (‘‘R&D’’), and higher
selling, general and administrative (‘‘SG&A’’) expenses. The increase in SG&A expenses was partially
offset by gains from sales of real estate.
Our business continues to produce significant cash flow from operations, generating $12.3 billion in
fiscal 2014. Additionally, we invested $3.0 billion in property, plant and equipment net of proceeds
from sales, repurchased $2.7 billion of common stock and paid dividends of $1.2 billion to stockholders.
As of October 31, 2014, cash and cash equivalents and short- and long-term investments were
$15.5 billion, representing an increase of approximately $3.0 billion from October 31, 2013.
We continue to experience challenges that are representative of trends and uncertainties that may
affect our business and results of operations. One set of challenges relates to continuing dynamic and
accelerating market trends. Another set of challenges relates to changes in the competitive landscape.
Our major competitors are expanding their product and service offerings with integrated products and
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