In a big shock, HP announced a messy pile of news this morning.Essentially, there is a reorg, a writedown, an increased restructuring charge, and to make it all go down a little bit more easily, an increase in guidance for Q3 EPS.
Phew! It’s a lot to sort through, but the stock is up 5% in pre-market trading, so investors like what they see. Err, the stock was up 5%. It’s now up just 2% or so.
When Meg Whitman took over HP, she inherited a company in a trouble and transition. This year appears to be a year of cleaning out the rot, which means making lots of ugly announcements like this.
Here are the key points of the release:
- HP’s restructuring plans will lead to a bigger than expected charge for HP. In the spring HP announced plans to let go a number of employees. It looks like more employees than expected took HP’s severance offer, and now it will record a $1.5-$1.7 billion charge, as opposed to the $1 billion it originally forecasted.
- It is taking an $8 billion writedown in its Services division. This is from the $14 billion acquisition of EDS in 2008.
- It is reorganising the Services division. John Visentin, who was running Enterprise Services is leaving, and Mike Nefkens, will take his place.
- HP raised the outlook for Q3. Its non-GAAP EPS is $1.00, up from $0.94-$0.97. It looks like it’s adding this to sweeten what is an otherwise sour press release.
Here is the full press release from HP:
HP Announces Organizational Changes for Enterprise Services
Company Increases Q3FY12 Non-GAAP Outlook
PALO ALTO, CA — (Marketwire) — 08/08/12 — HP (NYSE: HPQ) today announced that it has appointed Mike Nefkens, currently senior vice president and general manager of HP Enterprise Services (ES) — EMEA, to lead HP ES on an acting basis. John Visentin, who previously ran HP ES, will be leaving the company to pursue other interests.
HP also announced today that Jean-Jacques (JJ) Charhon, senior vice president and chief financial officer of HP ES, was appointed chief operating officer for HP ES. Charhon will focus on increasing customer satisfaction and improving service delivery efficiency, which will help drive profitable growth.
Nefkens will be responsible for driving growth and innovation for HP’s applications, business processing and outsourcing services. Nefkens has led successful customer IT transformations for some of HP’s largest services accounts. Prior to joining Electronic Data Systems (EDS), he spent 10 years with Holland Chemical International NV, where he held several executive positions in Mexico, Nicaragua, Venezuela and the western United States. Nefkens will report to Meg Whitman, president and chief executive officer, HP.
Charhon joined HP in 2010 as vice president of Finance for the Personal Systems Group. He brings a decade of services experience in the technology sector from both General Electric (GE) and HP. At GE, he held a number of global leadership roles. In his new position, Charhon will report to Nefkens.
These appointments are designed to drive profitable growth, service innovation and client satisfaction for the Services business.
Q3 FY12 non-GAAP outlook
HP is increasing its previously provided third quarter fiscal 2012 non-GAAP earnings per share (EPS) outlook to approximately $1.00 per share, up from a previous range of $0.94 to $0.97.
Third quarter fiscal 2012 non-GAAP diluted EPS estimates exclude after-tax costs related primarily to the amortization and impairment of purchased intangible assets, goodwill impairment charges, restructuring charges and acquisition-related charges.
Q3FY12 GAAP outlook Services goodwill impairment charge HP expects to record a non-cash pre-tax charge for the impairment of goodwill within its Services segment of approximately $8 billion in the third quarter of its fiscal 2012.
The impairment review stems from the recent trading values of HP’s stock, coupled with market conditions and business trends within the Services segment. Under accounting rules, when indicators of potential impairment are identified, companies are required to conduct a review of the carrying amounts of goodwill and other long-lived assets to determine if an impairment exists.
HP does not expect this estimated goodwill impairment charge to result in any future cash expenditures or otherwise affect the ongoing business or financial performance of its Services segment.
HP also updated the amount of the pre-tax charge it expects to record in the third quarter of fiscal 2012 in relation to its restructuring program announced on May 23, 2012. The change is primarily driven by a higher than anticipated acceptance rate under its early retirement program and faster than expected implementation of the workforce reduction program. Accordingly, HP now expects to record a pre-tax charge of approximately $1.5 billion to $1.7 billion, an increase from its previous estimate of approximately $1 billion, in its third quarter of fiscal 2012 that will be included in its GAAP financial results.
Given the expected impairment charge associated with the Services segment and the expected increased charge associated with the restructuring program, HP now expects third quarter fiscal 2012 GAAP EPS to be in the range of ($4.31) to ($4.49) including the GAAP tax impact on the impairment.
HP did not provide an updated outlook for the full year fiscal 2012.
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