Marie Myers
Chief Financial Officer at HP
Thanks, Enrique, and good afternoon, everyone. It's a pleasure to be here with you all today. We delivered another strong quarter financially, due to outstanding operational execution and good progress in our future ready transformation.
We generated solid results across revenue, non-GAAP operating margin, non-GAAP EPS and free cash flow, building on our proven track record of meeting or exceeding our goals. Our team is executing well despite the challenging macro environment, delivering Q4 sequential growth in revenue and non-GAAP operating profit dollars in both Personal Systems and Print.
Margins were at or above the high end of our ranges, resulting in a return to year-over-year growth in non-GAAP EPS. While free cash flow more than doubled sequentially, consistent with our outlook. We exceeded our future-ready transformation cost savings target for fiscal '23 and are on track in '24, to continue reducing our structural costs, while investing in our key growth areas.
While we continue to monitor economic indicators and geopolitical risks, we're pleased with the momentum and health of our business. We will continue our efforts to drive fundamental improvements to our cost structure longer-term, while prudently and aggressively managing near-term expenses. With the savings we generate, we'll continue to focus on prioritizing our investments, so that we are well positioned to deliver on the longer-term financial outlook, we outlined at our Securities Analyst Meeting last month.
Now let me begin by providing some additional color on our results. Starting with the full year, we stayed focused on what we could control, disciplined execution and cost management, and we delivered solid performance despite the macroeconomic and competitive dynamics we faced. Revenue was $53.7 billion, down 15% nominally and down 12% in constant currency. Revenue in our key growth areas grew mid single-digits, constituting approximately 20% of total revenue.
Non-GAAP operating profit was $4.6 billion, down 14% or 8.5% of total revenue, flat year-over-year. Non-GAAP net earnings per share was down 18% to $3.28. We generated $3.1 billion of free cash flow consistent with our full year guidance, and we returned $1.1 billion to shareholders and raised our dividend by 5%.
Now, let's take a closer look at the details of Q4. Net revenue was $13.8 billion in the quarter, down 6% normally and 5% in constant currency. Year-over-year declines improved sequentially across each of our regions in constant currency, Americas declined 6%, EMEA declined 2%, and APJ declined 8%, as demand remained soft in China. Gross margin was 21.6% in the quarter, up 3.4 points year-on-year, primarily due to lower component and logistics costs and a favorable mix, partially offset by currency and competitive pricing in Personal Systems.
Non-GAAP operating expenses were $1.7 billion, the year-over-year increase in operating expenses was driven primarily by reinvestment of some future-ready savings in growth initiatives, investment in people and one extra month of Poly, offset in part by structural and other cost reductions. Non-GAAP operating profit was $1.2 billion, up 11.5%. Non-GAAP net OI&E expense was $173 million, up sequentially due largely to higher currency losses and up year-on-year due to higher currency losses and factor costs. Non-GAAP diluted net earnings per share, increased $0.08 or 10% to $0.90, with a diluted share count of approximately 1 billion shares.
Non-GAAP diluted net earnings per share excludes a net benefit totaling $72 million, primarily related to tax adjustment related credits and pension and post-retirement benefit, partially offset by restructuring and other charges, amortization of intangibles and acquisition and divestiture-related charges. As a result, Q4 GAAP diluted net earnings per share was $0.97.
Now let's turn to segment performance. In Q4, Personal Systems revenue was $9.4 billion, down 8% or 7% in constant currency, but up 5% sequentially, reflecting seasonal strength ahead of the holiday season. Total units were flat on a net basis with Commercial down 6% and a Consumer up 9%. Nevertheless, we improved our overall market share in calendar Q3, on a year-over-year basis for the third consecutive quarter. And year-over-year Commercial revenue declines stabilized sequentially even as Commercial customers remain cautious.
Drilling into the details, Consumer revenue was down 1% and Commercial was down 11%, driven by lower TAM, increased competitive pricing and unfavorable mix, offset in part by market share gains in both Consumer and Commercial. Strong profit and margin results in both customer segments were driven by our emphasis on profitable growth and effective cost management. Competitive pricing pressures eased somewhat in Q4, resulting in increased ASPs, contributing to the sequential improvement in Personal Systems revenue this quarter, consistent with our outlook. Our channel inventory is back to normalized levels.
Personal Systems delivered $631 million of operating profit with operating margins of 6.7%. Our margin increased 2.5 points year-over-year, primarily due to lower commodity and logistics costs and structural cost savings. This was partially offset by mix, currency and investment in people. Sequentially, our operating margin held firm towards the high end of our target range, driven by strong profitability in both our Consumer and Commercial business segments.
In Print, our results reflect our continued focus on execution and disciplined cost management, as we navigate a weak and competitive Print market. In Q4, total Print revenue was $4.4 billion, down 3% nominally or 2% in constant currency. The decline was driven by soft demand in both Consumer and Commercial, market share loss and currency. Offset partially by supplies revenue growth.
Hardware revenue was down $188 million, driven by lower volumes attributable largely to continued soft demand in Greater Asia and China and share loss as our Japanese competitors continued to price aggressively. Total hardware units decreased 19% year-over-year. Industrial Graphics finished the year positively with revenue returned to growth in Q4, driven by hardware and services with performance improvements across all major geographical regions.
By Customer segment, Commercial revenue decreased 4% on a reported basis and in constant currency with units down 24%. And Consumer revenue decreased 21% or down 19% in constant currency with units down 18%. Demand for traditional home ink printers remain soft but was offset partially by increased demand for big tank printers. In office hardware, ASPs were up double-digit year-over-year as favorable mix, offset competitive pricing and currency headwinds driven by improved contractual A3 demand across multiple markets. Supplies revenue was $2.8 billion, increasing 3% nominally and 4% in constant currency.
For FY '23, supplies revenue declined 1% on a constant currency basis in line with our long-term outlook of down low to mid single-digits. Print operating profit was approximately $836 million, down 6% year-over-year, and our operating margin was 18.9%, Operating margin decreased 0.8 points driven by investments in people, competitive pricing and unfavorable currency, partially offset by favorable mix and cost reductions.
Turning to our Future Ready Transformation plan. We successfully completed the first year of our three year program and delivered better-than-expected performance, against our goals for fiscal year '23. Given the strong progress, we made during the year and confidence we have to drive additional structural cost savings, we recently raised our cumulative program target to $1.6 billion.
In FY '23, we generated gross annual run rate structural cost savings across COGS and opex, exceeding our revised target. Let me briefly recap some key accomplishments across each of the three core pillars of our program that we achieved during fiscal '23. Under our operational excellence pillar, we continue to optimize and reduce structural costs across our businesses, particularly in corporate.
We embraced hybrid work, enabling us to rationalize our real estate portfolio, executing 13 site consolidations or exits during the year. We also simplified our go-to-market organization, including streamlining our management structure. We made solid progress on our digital transformation efforts by driving additional automation and process improvements. We modernized our data infrastructure to leverage AI machine learning to deliver richer, data-driven insights from business decisions.
Looking ahead, we are accelerating a generative AI capabilities, including rolling out AI tools like GitHub Copal to approximately half of our developers as well as implementing HP-specific large language models to improve efficiencies through a chatbot for our sales and service representatives. Further, there are significant opportunities ahead, across many additional use cases. Our third pillar is focused on simplifying our product portfolio. Significantly reducing the number of platforms we support to drive agility and operating leverage. In FY '23, the actions we took in Personal Systems continued to impact our overall performance.
At the end of FY '23, we were approximately halfway to our year end FY '24 goal of reducing our total number of Personal Systems platforms by approximately one-third. In addition, we made great progress reducing our commodity complexity by decreasing the number of client SKUs at our Personal Systems portfolio. We expect these initiatives will optimize our overall supplier ecosystem increase our supply chain efficiency and drive better forecast capabilities.
And in Print, by rationalizing our investments, we plan to simplify our Print portfolio to drive a 40% reduction in ink hardware platforms shipped by FY '25. As we discussed at our Securities Analyst Meeting, we see significant opportunities ahead of us to focus on our Future Ready Plan and position the company to optimize our cost structure and enhance our margin performance.
Shifting to cash flow and capital allocation. Q4 cash flow from operations was strong at $2 billion, and free cash flow was $1.9 billion, on the strength of the sequential growth in Personal Systems. Free cash flow for fiscal year '23 was approximately $3.1 billion, consistent with our outlook. The cash conversion cycle was minus 32 days in the quarter. This improved three days year-over-year, driven exclusively by an increase in days payable.
In Q4, we returned approximately $260 million to shareholders via cash dividends. We did not repurchase any shares in the quarter, given that we were in possession of material non-public information, but we expect to resume repurchases in Q1, and be active throughout FY '24. For fiscal year '23, we returned greater than $1.1 billion to shareholders and retired $1.6 billion of debt.
Regarding FY '24, we are reiterating our outlook provided at our Securities Analyst Meeting last month. We intend to return approximately 100% of our free cash flow to shareholders, next year, as long as our debt-to-EBITDA ratio remains under 2 times and unless higher ROI opportunities arise, such as strategic acquisitions.
Looking forward to FY '24, consistent with what we said at our October Securities Analyst Meeting, we assume the market will stabilize in our base case scenario, underlying that outlook for Personal Systems is for revenues to grow in line with the Personal Systems market and for Print revenue to be in line with the Print market. We expect operating margins for both Personal Systems and Print to be solidly within their respective target ranges, as we continue to manage costs and pricing in this dynamic and uncertain environment.
Regarding our non-GAAP FY '24 EPS outlook, consistent with historical seasonality, we expect second half performance will be greater than the first half. As we said at our Security Analyst Meeting, we expect corporate other expense for fiscal '24, to be relatively flat year-over-year at approximately $1 billion.
Keep in mind that due to the timing of compensation expense, we expect approximately one-third of FY '24's corporate other expense in Q1. And in Q1, we expect the economic and demand environment to remain challenging but stable. As we continue to manage cost aggressively to help offset some of these pressures, we expect our operating profit margins for both Personal System and Print to be toward the high end of their respective target ranges for the quarter.
Taking these considerations into account, we are providing the following outlook for Q1 and fiscal year 2024. We expect first quarter non-GAAP diluted net earnings per share to be in the range of $0.76 to $0.86. And first quarter GAAP diluted net earnings per share to be in the range of $0.60 to $0.70. We expect FY '24 non-GAAP diluted net earnings per share to be in the range of $3.25 to $3.65. And FY '24, GAAP diluted net earnings per share to be in the range of $2.68 to $3.08.
In summary, we are pleased with our Q4 results, as we delivered on our commitments, even in light of the continued challenging macro environment. Our longer-term financial framework that we outlined at our Security Analyst Meeting last month, remains unchanged, and we have good momentum to execute on our near-term FY '24 objectives. Our focus remains on profitable growth in the higher value segments of the market and structural cost savings across our P&L, while returning 100% of our free cash flow to our shareholders.
And now I would like to hand it back to the operator and open the call for your questions.
