Deutsche Bank Shares Rise After Shakeup

ENLARGE Deutsche Bank managers held meetings and conference calls with employees in London, New York and Frankfurt, above. Photo: Martin Leissl/Bloomberg News By Jenny Strasburg and Jenny Strasburg The Wall Street Journal CANCEL Biography @jennystrasburg Google+ [email protected] Juliet Samuel Juliet Samuel The Wall Street Journal CANCEL Biography @CitySamuel [email protected] Oct. 19, 2015 1:46 p.m. ET 0 COMMENTS Deutsche Bank AG DB 2.48 % employees and investors on Monday positively graded the lender’s management and organizational overhaul, saying they welcomed clarity on how businesses will be judged going forward. They also said next week will be crucial to understanding Deutsche Bank’s

Freshly Minted HP Inc. Plays the Long Game

A pedestrian walks near the entrance to HP's headquarters in Palo Alto, Calif., on May 22. ENLARGE
A pedestrian walks near the entrance to HP’s headquarters in Palo Alto, Calif., on May 22. Photo: Bloomberg News

Growth has always been golden in Silicon Valley, and HP Inc. HPQ -0.62 % hopes to prove it isn’t the only definition of success.

Analysts expect the former Hewlett-Packard Co. printing-and-personal-computer business to continue a recent pattern of revenue declines when it reports quarterly financial results on Wednesday, the latest evidence of waning demand for those products.

Yet HP’s shares are up 22% on the year, outpacing the broader stock market and other mature tech companies such as Microsoft Corp. MSFT 0.03 % , Intel Corp. INTC 0.77 % and International Business Machines Corp. IBM -0.82 %

HP’s stock-market cachet is linked to its generation of cash, which has fueled outsize dividends and the potential of share buybacks that could further boost its stock price. Highlighting those attributes for investors was one motivation for separating the company from the more growth-oriented entity now known as Hewlett Packard Enterprise Co. HPE 0.09 % , said Dion Weisler, HP’s chief executive, in a recent interview.

The original HP, a technology pioneer founded in 1939, had developed finely tuned practices to monitor sales and profit, said Cathie Lesjak, HP’s CFO. Putting equal attention to the balance sheet and cash flow “is new muscle for almost everybody in the company,” she said.

Not that Mr. Weisler isn’t laying plans to get HP growing again. But he said the company’s business creates financial breathing room to place bets that may take years to pay off.

HP, the second-largest PC maker behind Lenovo Group Ltd. LNVGY -5.13 % , gets most of its revenue from sales of those products. That market has been shrinking, but cash flow from the business remains very strong, Mr. Weisler said. One reason is that HP takes in revenue from customers significantly faster than it pays suppliers of components to build the systems it sells, he said.

More than half of HP’s profit comes from printing, primarily sales of ink and toner that generates a steady flow of cash.

The dynamics have enabled HP to pledge to investors that it will return 50% to 75% of its free cash flow—the amount remaining after capital expenditures—to shareholders in the form of dividends and buybacks. The company has estimated it will generate $ 2 billion to $ 2.3 billion in free cash flow for the fiscal year ending in October.

Toni Sacconaghi, an analyst at Sanford C. Bernstein, wrote in a note that HP’s current 12.4 cent quarterly dividend amounts to about 30% of free cash flow, so could be increased. Mr. Sacconaghi said HP’s 3.4% dividend yield is already among the highest of publicly held companies.

Still, shrinking revenue remains an issue, particularly for HP’s printing business. Steven Milunovich, an analyst at UBS Securities, predicts HP will report a 15% third-quarter decline in revenue from its supplies business compared with the year-earlier period, with printer sales down 9%.

In all, he expects quarterly revenue to fall 8% to $ 11.4 billion and net income to drop 23%.

Mr. Weisler hopes to spur growth by building a franchise beyond desktop-oriented inkjet and laser printers toward the bigger copying and printing systems that serve entire departments. In a longer-term bet, the company has announced plans to enter the newer market for 3-D printers.

In PCs, Mr. Weisler said, HP plans to focus on growing, profitable segments such as high-end gaming systems and premium laptops while avoiding low-margin, me-too products such as low-end tablets.

Some progress emerged in the second quarter. Market researcher International Data Corp. in July estimated HP’s global quarterly shipments rose 5.1%, despite a 4.5% drop in the total market. In the U.S., shipments rose 11.5%, IDC said.

“I’m interested in growth,” Mr. Weisler said. “But I’m much more interested in profitable growth.”

Write to Don Clark at [email protected]


WSJ.com: US Business

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