HP's Pyramid Growth: Fool by Numbers (HPQ)

HP's Pyramid Growth: Fool by Numbers

On Aug. 16, all-around computing giant Hewlett-Packard (NYSE: HPQ ) released third-quarter earnings for the period ended July 31, 2007.

These results are essentially identical to last quarter's. That's impressive, because Q3 is traditionally HP's weakest quarter of the year, with a 3% sequential revenue drop last year.
It's a good sort of pyramid: Start with some earnings growth, build out net margins in the middle, and anchor it all with a generous share buyback. That's how you get swifter growth at every step of our income statement rundown below.
The personal-computer segment outgrew all other divisions, at a 29% clip, as HP cements its newfound market-share lead over Dell (Nasdaq: DELL ) . But all areas grew on an annual basis, both in revenue and operating margin. Well, except for the smallish and not-so-core financial-services operation, which stayed flat.
Take away the effects of changing currency exchange rates, and revenue growth was a mere 12%. HP pulls in 65% of its sales from outside the United States, and clearly stands to benefit from a weakening dollar.

(Figures in millions, except per-share data)

Income Statement Highlights

	Q3 2007	Q3 2006	Change
Sales	$25,377	$21,890	15.9%
Net Profit	$1,778	$1,375	29.3%
EPS	$0.66	$0.48	37.5%
Diluted Shares	2,697	2,839	(5.0%)

Get back to basics with the income statement.

Margin Checkup

	Q3 2007	Q3 2006	Change*
Gross Margin	24.5%	24.8%	(0.3)
Operating Margin	8.3%	6.9%	1.4
Net Margin	7.0%	6.3%	0.7

*Expressed in percentage points.

Margins are the earnings engine.

Balance Sheet Highlights

Assets	Q3 2007	Q3 2006	Change
Cash + ST Invest.	$12,490	$15,995	(21.9%)
Accounts Rec.	$11,845	$9,631	23.0%
Inventory	$8,006	$7,464	7.3%

Liabilities	Q3 2007	Q3 2006	Change
Accounts Payable	$11,673	$10,695	9.1%
Long-Term Debt	$4,945	$2,451	101.8%

The balance sheet reflects the company's health.

Cash Flow Highlights

	Q3 2007	Q3 2006	Change
Cash From Ops.	$1,867	$2,629	(29.0%)
Capital Expenditures	$548	$389	40.9%
Free Cash Flow	$1,319	$2,240	(41.1%)
Owner Earnings	$1,915	$1,584	20.9%

Free cash flow is a Fool's best friend.

Dell is both a Motley Fool Inside Value pick and a Motley Fool Stock Advisor recommendation.

Related Foolishness:

Fool by Numbers is designed to give you the raw earnings information in a timely fashion, putting all the numbers you need in one easy-to-read place. But at The Motley Fool, we believe numbers tell only part of the story, so check Fool.com for more of our in-depth discussion of what the numbers mean.

At the time of publication,Anders Bylund had no position in any company mentioned. Fool rules are here.

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