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HP Resorts to Layoffs to Control Costs, Boost Earnings per Share

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Layoffs gave a boost to HP’s EPS in fiscal 3Q15

In this series, we touched upon the recent developments and steps taken by Hewlett-Packard (HPQ) to move forward ahead of its split into two, effective November 1, 2015.

In fiscal 3Q15, layoffs or job cuts led to a fall of 13% on a year-over-year basis in GAAP (generally accepted accounting principles) SG&A (selling, general, and administration) expenses. Its GAAP SG&A stood at $2.96 billion compared to $3.39 billion in fiscal 3Q14, thus giving a boost to EPS (earnings per share) in fiscal 3Q15.

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In fiscal 3Q15, HP posted revenues and non-GAAP EPS of $25.3 billion and $0.88, respectively. HP wasn’t able to beat analysts’ expectations on the revenue front. Analysts were expecting HP to post revenues of ~$26.25 billion in fiscal 3Q15. But HP did manage to beat their expectations by $0.03 per share on the EPS front.

Layoffs counterbalanced the company’s split costs

In its fiscal 2Q15 earnings release, HP’s CEO (chief executive officer) Meg Whitman stated that the company’s split into two separate organizations is expected to cost $400–$450 million, which will be divided equally between the two companies.

HP aims to cut 55,000 jobs by the end of 2015. This is likely to help the company counterbalance the separation costs. HP’s layoff started in 2012 with a target of 25,000 jobs but later grew to 55,000.

In late August 2015, Catherine Lesjak, HP’s CFO (chief financial officer) stated that the company will have an additional 5% job cuts than the earlier expected 55,000 people HP had planned to eliminate.

The above presentation shows historic numbers for US tech (technology) job cuts as reported by Challenger, Gray & Christmas, an employment consulting firm. Here, the technology sector encompasses computer, electronics, and telecom.

The 100,757 layoff announcements in 2014 were significant compared to 56,198 in 2013. Looking broadly at the tech space, layoffs increased by almost 80% last year. In 2014, the technology sector accounted for one out of five layoff announcements. The year 2014 saw leading technology players Microsoft (MSFT), IBM, Symantec (SYMC), and HP announcing layoffs as a way to keep costs in check.

If you’re bullish about HP, you might consider investing in the Technology Select Sector SPDR ETF (XLK), which invests about 1.25% of its holdings in HP.

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