Feeds

HP takes 12 'one-time' charges in a row

Rivals in awe of layoff lifestyle

Reducing security risks from open source software

Ever since the Compaq terror, layoffs have become a way of life at HP. The company, however, continues to treat the firings as "one-time" events in its financial statements. This practice has raised the suspicions of one of Wall Street's most observant analysts.

Sanford Bernstein's analyst Toni Sacconaghi issued a report today detailing how HP's practice of continually counting restructuring expenses as one-time charges has given it a seemingly unfair advantage over rivals. The analyst argues that HP can hardly describe the charges as "one-time" events given that such expenses have appeared on every single financial statement over the past 12 quarters. That stretch has the one-time/every time practice occurring during both Carly Fiorina and Mark Hurd's tenure.

Noting that the charges appear to be part of HP's business model, Sacconaghi writes the following:

We believe that given the size and frequency of HPQ’s restructuring/workforce reduction charges, the company should look to expense them going forward as an ongoing part of doing business.

We believe that the consistency and magnitude of HP’s restructuring charges/workforce reductions indicates that they are more ongoing in nature than “one-time”. Moreover, expected ongoing gross margin pressure due to its portfolio mix shift makes it likely that HP will need to engage in future cost-cutting actions in order to maintain operating margins.

The discrepancies between HP's financial reports and those of rivals don't stop with the restructuring charges.

HP has been more aggressive than IBM, Sun Microsystems, Dell, Lexmark and EMC with excluding a variety of charges from its reported earnings. HP stands as unique among this crowd for not excluding charges for the amortization of purchased intangibles – stuff like acquired assets that depreciate over a fixed time, patents, trademarks and customer lists.

"For HP, the impact of the total charges it has excluded from earnings is huge ($4.8B over the last 3 years – or 30 per cent of earnings per share) and significantly higher than any other company in our coverage," the analyst wrote. "Including restructuring, amortization of acquired intangibles and in-process R&D expenses in reported earnings (all of which IBM does) would have lowered HP’s EPS over the last three years by -31 per cent. By contrast, the most it would have affected any other company in our universe over the same time frame would have been -6 per cent for EMC, and -5 per cent for IBM."

Sacconaghi makes two key declarations regarding these figures. For one, HP does not try to hide these financial practices. It's, in fact, very upfront about them and any investor or analyst can do their own calculations to see how HP stacks up with peers. In addition, there is some debate surrounding the expensing issues with some being for the practice and others against it, leaving the subject in a grey area.

That said, Sacconaghi notes that – for better or for worse - few investors will take the time to pore over HP's financial statements, preferring instead to follow the company's guidance on how to interpret the results. Beyond that, no matter your position on including and excluding charges, HP "is deriving a material relative boost to EPS by excluding charges its peers are expensing."

As usual, Sacconaghi remains painfully objective about these findings. He presents the data and then simply calls on HP to tweak its reporting practices to reflect that the "one-time" charges have become a tradition. The analyst has a per share price target of $35 for HP.

It should be noted that Sacconaghi, this fine publication, and plenty of others have brought up HP's fondness for one-time restructuring charges in the past. Management always assures observers that it takes such charges based on sound decision making around the direction of its business. So there you have it. ®

Mobile application security vulnerability report

More from The Register

next story
BBC goes offline in MASSIVE COCKUP: Stephen Fry partly muzzled
Auntie tight-lipped as major outage rolls on
iPad? More like iFAD: We reveal why Apple ran off to IBM
But never fear fanbois, you're still lapping up iPhones, Macs
Nadella: Apps must run on ALL WINDOWS – PCs, slabs and mobes
Phone egg, meet desktop chicken - your mother
HP, Microsoft prove it again: Big Business doesn't create jobs
SMEs get lip service - what they need is dinner at the Club
ITC: Seagate and LSI can infringe Realtek patents because Realtek isn't in the US
Land of the (get off scot) free, when it's a foreign owner
Samsung threatens to cut ties with supplier over child labour allegations
Vows to uphold 'zero tolerance' policy on underage workers
Dude, you're getting a Dell – with BITCOIN: IT giant slurps cryptocash
1. Buy PC with Bitcoin. 2. Mine more coins. 3. Goto step 1
There's NOTHING on TV in Europe – American video DOMINATES
Even France's mega subsidies don't stop US content onslaught
You! Pirate! Stop pirating, or we shall admonish you politely. Repeatedly, if necessary
And we shall go about telling people you smell. No, not really
prev story

Whitepapers

Designing a Defense for Mobile Applications
Learn about the various considerations for defending mobile applications - from the application architecture itself to the myriad testing technologies.
How modern custom applications can spur business growth
Learn how to create, deploy and manage custom applications without consuming or expanding the need for scarce, expensive IT resources.
Reducing security risks from open source software
Follow a few strategies and your organization can gain the full benefits of open source and the cloud without compromising the security of your applications.
Boost IT visibility and business value
How building a great service catalog relieves pressure points and demonstrates the value of IT service management.
Consolidation: the foundation for IT and business transformation
In this whitepaper learn how effective consolidation of IT and business resources can enable multiple, meaningful business benefits.