The “Beat” Goes On——-Hewlett-Packard’s Outrageous Ex-Items Spin

By ZeroHedge

If you are the Hewlett-Packard CFO and you know you are about to miss badly on your revenue, which incidentally at $25.5 billion will not only be a 7% drop from the prior year’s topline and below the $25.7 billion expected, but will also be the worst revenue since July 2007 and on top of that, your Q2 GAAP EPS of $0.55 will will miss lower end of the previously provided range of $0.57 -$0.61, what do you do? Why you fudge your non-GAAP EPS as much as you possibly can.

So much so, that while missing your own GAAP outlook your non-GAAP EPS of $0.87 lands in the upper end of the $0.84-$0.88 range you provided!


How is it that the company’s GAAP EPS declined by a whopping 17%, from $0.66 to $0.55, and yet its non-GAAP EPS dropped by a tiny 1% from 0.88% to 0.87%?

This is how:

 Non-GAAP diluted net EPS exclude after-tax costs of $585 million and $0.32 per diluted share, respectively, related to separation costs, restructuring charges, the amortization of intangible assets and acquisition-related charges.

In other words, because the business is doing progressively worse, it will get full credit for all these non-GAAP addbacks, which make it seem that neither revenue nor actual operations cratered!

But don’t worry, while Hewlett admits the organic contraction will continue and Q3 EPS will decline even more, this time to a range of $0.50-$0.54 or down 13% from the current quarter guidance (which the company will surely miss once more) its non-GAAP EPS will be virtually unchanged at $0.83-$0.87!

And that is non-GAAP data fabrication magic front and center right there.

Oh, and just in case someone asks about that all important metric which no amount of seasonal-adjustments or GAAP fabrication can adjust, actual cash flow, here it is: “HP generated $1.5 billion in cash flow from operations in the second quarter, down 51% from the prior-year period.”


The collapse in cash flow generation however did not prevent the company from “utilized $659 million of cash during the quarter to repurchase approximately 19.0 million shares of common stock in the open market.”

In fact, as the following chart shows, in the LTM Period, HPQ has spent just about the same amount on stock buybacks as it has on capital expenditures.


Is there any wonder then why HPQ’s revenue is constantly crashing, and has now dropped to the lowest level in 8 years?!

Source: Hewlett Packard Just Reported Its Worst Revenue Since 2007: This Is How It “Beat” | Zero Hedge