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A Look at HP’s Cost Savings and Capital Allocation

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Capital return and free cash flow

HP (HPQ) aims to return 50.0%–75.0% of its free cash flow to shareholders through dividends and share repurchases. It has generated strong cash flows in fiscal 2017, and management has increased its outlook for fiscal 4Q17. In fiscal 2017, HP expects its free cash flow to reach $3.0 billion.

HP’s CFO (chief financial officer) Cathie Lesjak stated, “When you think about dividends, kind of our long-term goal is that dividends will grow roughly in line with earnings.” After allocating for its capital return program, HP still has some cash left for mergers and acquisitions and inorganic growth.

In fiscal 3Q17, HP returned $524.0 million to its shareholders through dividends and share repurchases. Since the beginning of 2017, it has returned 56.0% of its free cash flow to shareholders.

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HP expects productivity savings of $1 billion

Last year, HP’s management estimated productivity savings of $1.0 billion in fiscal 2017. It expects to achieve that through access to the right mix of bill of materials and an efficient supply chain process. HP believes that although it split from Hewlett Packard Enterprise (HPE) in 2015, it’s still a very large company with annual revenue of $50.0 billion and sales in more than 150 countries. That provides ample opportunity to streamline operations, generate savings, and increase profit margins.

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