As the U.S. economy has reached multidecade unemployment rate lows, it is rare for a company to announce massive layoffs. That changed yesterday as HP Inc. (NYSE: HPQ) said it would fire as many as 9,000 over the next three years as a means to save $1 billion. Oddly, HP is flush enough with cash that management said it would increase its share buyback program by $5 billion. Ironically, among the buyback reasons is that it is to offset the “dilution created by shares issued under employee stock plans.”
Fiscal 2020 outlook
For fiscal 2020, the company estimates GAAP diluted net EPS to be in the range of $1.98 to $2.10 and estimates non-GAAP diluted net EPS to be in the range of $2.22 to $2.32. Fiscal 2020 non-GAAP diluted net EPS estimates exclude $0.22 to $0.24 per diluted share, primarily related to restructuring and other charges, acquisition-related charges, defined benefit plan settlement charges, amortization of intangible assets, non-operating retirement-related (credits)/charges, tax adjustments and the related tax impact on these items.
Based on the current environment, HP anticipates generating free cash flow of at least $3.0 billion for fiscal 2020.
In fiscal 2020, the company indicated that it expects to return at least 75% of free cash flow, with a 10% increase in the planned quarterly dividend amount, and the balance returned to shareholders through share repurchases.
“In FY19, we continue to deliver on our financial commitments, with consistent company-level performance, non-GAAP EPS, free cash flow and return of capital,” said Steve Fieler, Chief Financial Officer. “I’m confident in our ability to execute with the multiple levers we have to drive profit and create value in our businesses.”
Fiscal year 2020 restructuring plan
Today, HP Inc. announced a fiscal year 2020 restructuring plan to simplify its operating model and become a more digitally enabled company. The company expects to reduce gross global headcount by approximately 7,000-9,000 employees through a combination of employee exits and voluntary early retirement. The company estimates that it will incur total labor and non-labor costs of approximately $1.0 billion in connection with the restructuring and other charges, with approximately $100 million in fiscal Q4 of 2019, $500 million in fiscal 2020 and the rest split between fiscal 2021 and 2022. These actions are expected to be completed in fiscal 2022. The company estimates that these actions will result in annualized gross run rate savings of about $1.0 billion by the end of fiscal 2022.