Hewlett-Packard Co. Earnings Call Nuggets: Revenue Growth Outlook and Cash Flow

Hewlett-Packard Co. (NYSE:HPQ) recently reported its second quarter earnings and discussed the following topics in its earnings conference call.

Revenue Growth Outlook

Kathryn Huberty – Morgan Stanley: Meg, you mentioned that the services run-off will be pushed more into fiscal ’14 which will obviously hurt topline growth. But just curious if we exclude that impact you still think that HP can get to neutral or positive revenue growth next year, excluding that services?

Meg Whitman – President and CEO: So, Kathy, we do continue to believe that revenue growth is possible. I think you have to remember that we are rebuilding ourselves in the midst of some of the most profound changes that I’ve seen in the technology industry almost in our generation, and the progress on this turnaround isn’t going to be linear. I would also say that the macroeconomic environment I don’t think is going to be a tailwind for us. So, the slower ES revenue run-off will create pressure in ’14, but if (indiscernible) performed as we expect it will, if HP networking does, it’s security, big data and our industry-standard server business performs as we expected to I think we had a good shot at growth in 2014, but there’s no question there’s headwind.

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Kathryn Huberty – Morgan Stanley: Then just as a quick follow-up with line of sight to a neutral net debt position. Do you feel comfortable stepping up the share buybacks even versus the second quarter run rate?

Meg Whitman – President and CEO: I think the good news is we will be in the happy position now of being able to do capital allocation across a number of different options and really the past 18 months have been solely focused on rebuilding the balance sheet, while increasing our dividend and in fact purchasing shares offset dilutions. So, we’re going to look at this in a return space ways, there is the opportunity to invest, the opportunity to return cash to shareholders, the opportunity to potentially do small tuck-in acquisitions that further our cloud initiatives or our converged infrastructure initiatives or our software initiatives. So you can be sure that we’re going to be disciplined about this and it’s going to be returns based.

Cash Flow

Benjamin Reitzes – Barclays: Just a little bit more on the free cash flow, considering the difference in the guidance, you had about a $5 run rate in free cash flow with the $5 billion you did and your outlook of the second half is much closer to a $3 run rate with the $2.5 billion, so it’s actually a little lower. But what is the real HP run rate in cash flow? Is it more like the second half, more like the first half, or somewhere in the middle? And how should we look at that from a long-term basis when things settle down?

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Meg Whitman – President and CEO: So Ben, I think the way to think about it is that it’s not really the first half or the second half, it’s the full year. We expect that for the full year we’ll get to approximately $7.5 billion. We are very focused on cash flow in this company. We have really changed the whole sensitivity and awareness of cash flow through a lot of education programs and what have you, and you’re seeing it payoff, you’re seeing it payoff in free cash flow because of the tight management of our CapEx, you see it in cash flow from ops because of the cash conversion cycle. We improved the cash conversion cycle basically 7 days year-over-year. So we’re going to stay focused on that and I think that you should then look at the full year free cash flow as a launching point for fiscal ’14 and beyond.

Benjamin Reitzes – Barclays: So the goal is to grow it from 2013 that there’s not like a one-time aspect to the first half?

Meg Whitman – President and CEO: No, I don’t think there’s a one-time aspect here. The seasonality in the year is a little bit different. First half had some lower CapEx, lower structuring payouts than what we had originally expected, as well as some lower cash tax payments that are going to show up in the second half. So, the seasonality in the year is a little bit different, but over the long-term, our focus is absolutely to grow cash flow.

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