HP Inc. Stock Drops After Earnings Disappoint

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HP
Inc.
posted mixed financial results, showing the effects of both weak demand for printers and softer-than-expected prices for personal computers. And with fundamentals improving more slowly than the company had hoped, management trimmed its outlook for the October 2023 fiscal year.

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The stock (ticker: HPQ) was down 8% to $28.86 in premarket trading Wednesday.

For its fiscal third quarter ended July 31, HP reported revenue of $13.2 billion, down 9.9% from the year-ago quarter, and slightly below the Wall Street consensus of $13.4 billion. On an adjusted basis, profits were 86 cents a share, matching Street estimates and falling within the range of 81 to 91 cents management had predicted. Under generally accepted accounting principles, HP earned 76 cents a share, above the guidance range of 61 to 71 cents.

HP CEO Enrique Lores said in an interview that the company “continued to improve performance in a tough market,” with sequential growth in EPS, operating profit and free cash flow. The company’s PC business gained market share both sequentially and year over year, with improving operating margins, he said. 

But Lores also said “PC prices are not improving as quickly as we expected.” He noted that while overall demand is stronger than expected, in particular for consumer PCs, continued high levels of industry-wide inventory are pressuring pricing.

At the same time, he said, a slowdown in corporate hiring, among other factors, has reduced enterprise PC demand. Lores said he expects at least one more quarter of aggressive price competition before inventories normalize.

HP’s Personal Systems Group, the company’s PC business, had quarterly revenue of $8.9 billion, down 11% from a year earlier and slightly above the Street consensus at $8.7 billion. Commercial PC revenue was down 11%, while consumer PCs were down 12%.

As for printers, Lores said, demand was particularly soft for consumer models, while commercial printers were down modestly. Demand was soft in China, “which did not recover in Q3 as we had expected,” he said.

Printing group revenue was $4.3 billion, down 7% from a year ago and shy of the Street consensus at $4.7 billion. Commercial print revenue was down 6% from a year ago, while consumer was off 28%.

For the October quarter, HP sees non-GAAP profits of 85 to 97 cents a share, a range whose midpoint falls short of the Street consensus for 96 cents. On a GAAP basis, HP expects a profit of 65 to 77 cents a share. 

HP now sees full-year non-GAAP profits of $3.23 to $3.35 a share, down from a previous range of $3.30 to $3.50 a share. GAAP profits are now projected to be $2.95 to $3.07 a share, compared with a previous range of $2.91 to $3.11.

HP didn’t repurchase any stock in the quarter, but it did pay down $1.1 billion in long-term debt. Lores said the company plans to begin buying back shares in the October quarter at a high enough level to offset dilution from stock-based compensation. More aggressive purchases are possible in fiscal 2024, he said. 

Write to Eric J. Savitz at [email protected]