HP Inc. Net Income jumped on 111% and EBITDA Margin showed almost no change
11/29/2018 • About HP Inc. (
$HPQ) • By InTwits
HP Inc. reported FY2018 financial results today. Here are the key drivers of the company's long term financial model:
- EBITDA Margin is quite volatile: 7.9% in FY2018, 7.4% in FY2017, 8.0% in FY2016, 15.5% in FY2015, 15.2% in FY2014
- HP Inc. has low CAPEX intensity: 5 year average CAPEX/Revenue was 3.3%. At the same time it's a lot of higher than industry average of 7.6%.
- CAPEX is quite volatile: $546m in FY2018, $402m in FY2017, $433m in FY2016, $3,603m in FY2015, $3,853m in FY2014
- The company has highly profitable business model: ROIC is 72.9%
- It operates with medium-size leverage: Net Debt/EBITDA is 0.2x while industry average is -2.8x
Below you can find a comprehensive analysis of the key data driving the company's performance and the stock price.
Revenue and profitability
HP Inc.'s Revenue jumped on 12.3%. Revenue growth showed slowdown in FY18Q4 - it was 10.3% YoY. Revenue decline was slowing down on average by 14.1 pp per annum in FY2014-FY2018. Revenue decline was accompanies by EBITDA margin decline. EBITDA Margin decreased on 2.3 pp from 14.9% to 12.5% in FY2018.
Gross Margin showed almost no change in FY2018. Gross Margin stuck to a declining trend at -0.40 pp per annum in the last 5 years. SG&A as a % of Revenue showed almost no change in FY2018. Stock Based Compensation (SBC) as a % of Revenue showed almost no change in FY2018.
Net Income margin increased on 4.3 pp from 4.9% to 9.1% in FY2018.
Investments (CAPEX, working capital and M&A)
The company's CAPEX/Revenue was 0.93% in FY2018. The company's CAPEX/Revenue decreased on 6.1 pp from 7.0% in FY2015 to 0.93% in FY2018. It's average CAPEX/Revenue for the last three years was 0.87%.
Accounts receivable as a % of Revenue showed almost no change in FY2018. Inventories as a % of Revenue decreased slightly on 0.75 pp from 11.1% to 10.4% in FY2018. Accounts payable as a % of Revenue showed almost no change in FY2018.
HP Inc. has spent
$1,036m on M&A in FY2018 which accounts for 1.8% of revenue.
Leverage (Debt)
Company's Net Debt / EBITDA is 0.2x and Debt / EBITDA is 1.3x. Net Debt / EBITDA decreased on 0.033x from 0.2x to 0.2x in FY2018. Debt dropped on 23.4% while cash dropped on 26.2%.
HP Inc. has good short term financial stability: Interest coverage ratio (ICR) is 13.0x. HP Inc. has no short term refinancing risk: cash is higher than short term debt (353.1%).
Average interest expence charged on company's debt was 5.2% in FY2018.
Valuation and dividends
The company's trades at EV/EBITDA 8.5x and P/E 7.1x.
The company paid 16.9% of Net Income as dividends in FY2018. Dividends grew on average at -5.4% per annum in the last 5 years).
Management team
Dion J Weisler is a HP Inc.'s CEO. Dion J Weisler is a founder and has spent 3 years with the company. CEO total compensation was
$19,215,534 in FY2018 which included
$1,400,000 salary. The company's CFO is Steve Fieler. Steve Fieler has 1 year tenure at the company.
0.21% of the company is owned by insiders. Insider ownership didn't change in 2018.
At the end of financial year the company had 55,000 employees. The number of employees jumped on 12.2%. Average revenue per employee in FY2018 was
$1,063,127 and it showed almost no change in 2018.
Financial and operational results
FY ended 10/31/2018
HP Inc. ($HPQ) key annual financial indicators| mln. $ | 2014 | 2015 | 2016 | 2017 | 2018 | 2018/2017 |
|---|
P&L
|
|---|
| Revenue | 56,651 | 51,463 | 48,238 | 52,056 | 58,472 | 12.3% |
| Gross Profit | 11,220 | 9,939 | 8,998 | 9,578 | 10,669 | 11.4% |
| SG&A | 5,361 | 4,719 | 3,833 | 4,376 | 4,859 | 11.0% |
| EBITDA | 8,590 | 7,981 | 3,881 | 3,873 | 4,592 | 18.6% |
| EBIT | 4,256 | 3,920 | 3,549 | 3,519 | 4,064 | 15.5% |
| Interest expence | 167 | 167 | 273 | 309 | 312 | 1.0% |
| Tax | 939 | -186 | 1,095 | 750 | -2,314 | -408.5% |
| Net Income | 5,013 | 4,554 | 2,496 | 2,526 | 5,327 | 110.9% |
| Stock Based Compensation | 502 | 709 | 182 | 224 | 268 | 19.6% |
Balance Sheet
|
|---|
| Cash | 15,133 | 7,584 | 6,288 | 6,997 | 5,166 | -26.2% |
| Accounts Receivable | 13,832 | 4,825 | 4,114 | 4,414 | 5,113 | 15.8% |
| Inventory | 6,415 | 4,288 | 4,484 | 5,786 | 6,062 | 4.8% |
| Accounts Payable | 15,903 | 10,194 | 11,103 | 13,279 | 14,816 | 11.6% |
| Short Term Debt | 3,486 | 2,194 | 78 | 1,072 | 1,463 | 36.5% |
| Long Term Debt | 16,039 | 6,677 | 6,735 | 6,747 | 4,524 | -32.9% |
Cash flow
|
|---|
| Capex | 3,853 | 3,603 | 433 | 402 | 546 | 35.8% |
| Dividends | 1,184 | 1,250 | 858 | 894 | 899 | 0.6% |
| Acquisitions | 49 | 2,644 | 7 | | 1,036 | |
Ratios
|
|---|
| Revenue growth | -49.6% | -9.2% | -6.3% | 7.9% | 12.3% | |
| EBITDA growth | -26.8% | -7.1% | -51.4% | -0.2% | 18.6% | |
|
|---|
| Gross Margin | 19.8% | 19.3% | 18.7% | 18.4% | 18.2% | -0.2% |
| EBITDA Margin | 15.2% | 15.5% | 8.0% | 7.4% | 7.9% | 0.4% |
| EBIT Margin | 7.5% | 7.6% | 7.4% | 6.8% | 7.0% | 0.2% |
| SG&A, % of revenue | 9.5% | 9.2% | 7.9% | 8.4% | 8.3% | -0.1% |
| SBC, % of revenue | 0.9% | 1.4% | 0.4% | 0.4% | 0.5% | 0.0% |
| Net Income Margin | 8.8% | 8.8% | 5.2% | 4.9% | 9.1% | 4.3% |
| CAPEX, % of revenue | 6.8% | 7.0% | 0.9% | 0.8% | 0.9% | 0.2% |
|
|---|
| ROIC | 8.0% | 8.7% | 15.8% | 60.8% | 72.9% | 12.0% |
| ROE | 18.6% | 16.7% | | | | |
| Net Debt/EBITDA | 0.5x | 0.2x | 0.1x | 0.2x | 0.2x | -0.0x |
| Interest expence / Average debt | 0.9% | 1.2% | 3.5% | 4.2% | 5.2% | 1.0% |
People
|
|---|
| Insider ownership | 0.2% | 0.2% | 0.2% | 0.2% | 0.2% | 0.0% |
| Employees | 302,000 | 287,000 | 49,000 | 49,000 | 55,000 | 12.2% |
| Revenue/Employee, th. $ | 188 | 179 | 984 | 1,062 | 1,063 | 0.1% |
HP Inc. ($HPQ) key quoterly financial indicators
| mln. $ | FY18Q1 | FY18Q2 | FY18Q3 | FY18Q4 | | YoY change |
|---|
P&L
|
|---|
| Revenue | 14,517 | 14,003 | 14,586 | 15,366 | | 14.5% | 13.1% | 11.7% | 10.3% |
| EBITDA | 1,042 | 1,033 | 1,212 | 1,187 | | 10.9% | 13.9% | 16.0% | 21.0% |
| Net Income | 1,938 | 1,058 | 880 | 1,451 | | 217.2% | 89.3% | 26.4% | 119.8% |
Balance Sheet
|
|---|
| Cash | 5,475 | 4,247 | 6,195 | 5,166 | | -13.5% | -31.8% | -11.1% | -26.2% |
| Short Term Debt | 1,529 | 1,617 | 2,681 | 1,463 | | 1,429.0% | 1,370.0% | 152.4% | 36.5% |
| Long Term Debt | 6,340 | 4,494 | 4,503 | 4,524 | | -5.2% | -33.0% | -33.2% | -32.9% |
Ratios
|
|---|
| Gross Margin | 17.8% | 19.3% | 18.4% | 17.6% | | 0.1% | 0.1% | -0.2% | -0.5% |
| EBITDA Margin | 7.2% | 7.4% | 8.3% | 7.7% | | -0.2% | 0.1% | 0.3% | 0.7% |
| Net Income Margin | 13.3% | 7.6% | 6.0% | 9.4% | | 8.5% | 3.0% | 0.7% | 4.7% |
Peers in Technology Hardware, Storage &
Below we provide HP Inc. benchmarking against other companies in Technology Hardware, Storage & industry for the last 5 years. We show data for the top-5 companies by key financial metric together with the median value for all the companies in the industry.
Top companies by Revenue growth, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Crossroads Systems Inc ($CRSS) | | -90.6% | -35.5% | -89.5% | 39,959.5% |
| Immersion Corporation ($IMMR) | | 19.8% | -9.9% | -38.7% | 217.0% |
| Veritec Inc ($VRTC) | | -42.2% | -28.0% | -52.2% | 53.1% |
| Boxlight Corporation ($BOXL) | | -88.5% | 503.2% | 26.4% | 47.0% |
| Pure Storage, Inc. ($PSTG) | | 308.2% | 152.4% | 67.9% | 38.6% |
| |
|---|
| Median (30 companies) | -16.9% | -3.2% | -4.3% | 1.5% | 4.3% |
|---|
| HP Inc. ($HPQ) | | -9.2% | -6.3% | 7.9% | 12.3% |
Top companies by Gross margin, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Immersion Corporation ($IMMR) | 99.1% | 99.3% | 99.7% | 99.4% | 99.8% |
| Pure Storage, Inc. ($PSTG) | 43.5% | 55.5% | 61.9% | 65.9% | 65.5% |
| NetApp, Inc. ($NTAP) | 62.0% | 62.6% | 60.8% | 61.3% | 62.7% |
| Avid Technology, Inc. ($AVID) | 61.4% | 60.9% | 65.0% | 57.8% | 57.9% |
| Datasea Inc ($DTSS) | | | | 39.3% | 54.4% |
| |
|---|
| Median (29 companies) | 38.6% | 36.3% | 39.3% | 39.6% | 38.8% |
|---|
| HP Inc. ($HPQ) | 19.8% | 19.3% | 18.7% | 18.4% | 18.2% |
Top companies by EBITDA margin, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Immersion Corporation ($IMMR) | 12.3% | 9.0% | -25.1% | -127.0% | 48.6% |
| Apple Inc. ($AAPL) | 33.1% | 35.3% | 32.7% | 31.2% | 30.8% |
| Western Digital Corporation ($WDC) | 20.1% | 18.7% | 12.5% | 21.4% | 27.5% |
| NetApp, Inc. ($NTAP) | 16.9% | 16.7% | 11.3% | 15.4% | 22.9% |
| Seagate Technology PLC ($STX) | 19.3% | 21.1% | 11.3% | 16.7% | 20.0% |
| |
|---|
| Median (29 companies) | 7.1% | 6.2% | 3.8% | 3.5% | 7.9% |
|---|
| HP Inc. ($HPQ) | 15.2% | 15.5% | 8.0% | 7.4% | 7.9% |
Top companies by CAPEX/Revenue, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Hewlett Packard Enterprise Company ($HPE) | 6.6% | 6.4% | 10.8% | 10.9% | 9.6% |
| Pure Storage, Inc. ($PSTG) | 28.7% | 24.2% | 8.9% | 10.4% | 6.3% |
| 3D Systems Corporation ($DDD) | 3.5% | 3.4% | 2.6% | 4.8% | 5.9% |
| Apple Inc. ($AAPL) | 5.2% | 4.8% | 5.9% | 5.4% | 5.0% |
| Western Digital Corporation ($WDC) | 4.2% | 4.2% | 4.5% | 3.0% | 4.0% |
| |
|---|
| Median (29 companies) | 2.6% | 2.9% | 2.0% | 1.9% | 2.4% |
|---|
| HP Inc. ($HPQ) | 6.8% | 7.0% | 0.9% | 0.8% | 0.9% |
Top companies by ROIC, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Avid Technology, Inc. ($AVID) | | | | | 252.4% |
| Ionix Technology Inc ($IINX) | | | | 23.9% | 204.5% |
| Immersion Corporation ($IMMR) | 7.6% | 5.8% | -21.5% | -138.9% | 96.8% |
| NetApp, Inc. ($NTAP) | 12.5% | 14.8% | 7.3% | 14.0% | 28.1% |
| Apple Inc. ($AAPL) | 40.0% | 41.8% | 27.0% | 23.8% | 28.0% |
| |
|---|
| Median (37 companies) | 5.9% | 5.0% | -2.6% | 0.2% | 2.2% |
|---|
| HP Inc. ($HPQ) | 8.0% | 8.7% | 15.8% | 60.8% | 72.9% |
Top companies by Net Debt / EBITDA
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| CPI Card Group Inc. ($PMTS) | 3.4x | 3.5x | 5.8x | | 12.4x |
| NCR Corporation ($NCR) | 4.9x | 6.6x | 2.7x | 2.3x | 5.2x |
| Avid Technology, Inc. ($AVID) | -0.7x | 3.1x | 1.7x | 5.6x | 4.8x |
| Xerox Corporation ($XRX) | 3.5x | 3.5x | 3.1x | 3.0x | 3.0x |
| Electronics for Imaging, Inc. ($EFII) | -0.2x | 1.4x | 1.3x | 1.6x | 1.7x |
| |
|---|
| Median (19 companies) | -0.4x | 0.6x | 0.4x | 0.5x | 1.1x |
|---|
| HP Inc. ($HPQ) | 0.5x | 0.2x | 0.1x | 0.2x | 0.2x |
