HP Issues Cautious Forecast on 2017 Cash Flow
October 13 2016 - 5:20PM
Dow Jones News
HP Inc. expects to generate a bit less cash than analysts
anticipated in the next fiscal year but plans to share it liberally
with investors.
The big maker of printers and personal computers, which is
grappling with declines in those markets, on Thursday told analysts
it expects to increase its quarterly dividend by 7% in fiscal 2017
and report earnings in line with Wall Street expectations.
But HP executives acknowledged that they might disappoint some
analysts with regard to free cash flow, a measure of the money left
over after a company pays operating expenses. The company's shares
have risen for much of 2016, in large part because of analyst
expectations about improvements in that metric.
The company said it expects to generate $2.3 billion to $2.6
billion in free cash flow in the fiscal year ending in October
2017. That compares with analysts' average estimate of $2.76
billion for fiscal 2017 and $2.27 billion in the year ending in
October, according to FactSet.
Cathie Lesjak, HP's chief financial officer, attributed the
estimate largely to the company's success in the current fiscal
year of converting balance sheet items such as inventory into cash
more quickly. Keeping up that pace of improvement, she said, will
be difficult.
"It turns out to be a bit of a headwind," Ms. Lesjak said in an
interview ahead of its analyst meeting in New York.
Ms. Lesjak said HP expects to return 50% to 75% of free cash
flow to shareholders through dividends and share repurchases in
fiscal 2017, a target the company has said it expects to exceed in
the current fiscal year. HP plans to boost its share-buyback
authorization by $3 billion, she said.
The company's stock, up nearly 30% this year through Wednesday's
market close, declined 1% on Thursday. Its financial forecast was
issued after the close of regular trading.
One factor in HP's cash generation is reduced expenses. The
company, formed in the breakup of Hewlett-Packard Co. a year ago,
has trimmed about 3,000 employees from its payrolls since then. Ms.
Lesjak said reductions of 3,000 to 4,000 more employees are likely
over the next three years, in some cases keeping similar jobs at
separate companies that take over some HP operations on an
outsourced basis. The company employs about 50,000 people.
Dion Weisler, HP's chief executive, stressed that the company is
taking market share in personal computers and expects to spur
long-term growth in printers. The company in September agreed to
buy Samsung Electronics Co.'s printer business for $1.05 billion, a
deal designed to bolster HP's offerings in high-volume devices that
handle both printing and copying for office work groups.
Still, Mr. Weisler acknowledged that demand remains weak in both
businesses. "As I look forward to 2017, our assumptions are that
the markets are going to continue to be pretty challenged," he
said.
The company estimated it will report per-share earnings of $1.55
to $1.65 in its next fiscal year, excluding one-time items such as
restructuring charges. Analysts on that basis had $1.64 a share for
fiscal 2017, up from $1.61 a share in fiscal 2016, according to
FactSet.
Write to Don Clark at don.clark@wsj.com
(END) Dow Jones Newswires
October 13, 2016 17:05 ET (21:05 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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