HP Inc., a global tech giant, recently reported faltering financial results, underscoring a subdued demand for printers and a sluggish pricing for personal computers. The company’s less than stellar performance, which is indicative of a slower than anticipated improvement in fundamentals, has prompted the management to revise its fiscal outlook for October 2023. The news sent HP’s stocks (ticker: HPQ) spiraling down by 8% to $28.86 in premarket trading on Wednesday.
For the fiscal third quarter which concluded on July 31, HP posted a revenue of $13.2 billion, marking a 9.9% decline from the same quarter the previous year, and slightly missing the Wall Street consensus of $13.4 billion. The company’s adjusted profits stood at 86 cents a share, aligning with Street estimates and falling within the management’s predicted range of 81 to 91 cents. Under the generally accepted accounting principles, HP earned 76 cents a share, surpassing the guidance range of 61 to 71 cents.
HP Inc. Trims Outlook Amid Soft PC Prices and Weak Printer Demand
HP Inc. has reported a mixed bag of financial results, showing the impact of reduced demand for printers and lower-than-anticipated prices for personal computers. With the company’s fundamentals recovering at a slower pace than expected, the management has revised its forecast for the fiscal year ending in October 2023.
Financial Performance and Stock Market Reaction
HP’s revenue for the third quarter, which ended on July 31, stood at $13.2 billion. This represents a 9.9% drop from the same quarter of the previous year, slightly below the Wall Street consensus of $13.4 billion. Adjusted profits were in line with Street estimates at 86 cents a share. Meanwhile, according to generally accepted accounting principles (GAAP), HP earned 76 cents a share, surpassing the guidance range of 61 to 71 cents. As a result of these figures, HP’s stock (ticker: HPQ) fell 8% to $28.86 in Wednesday’s premarket trading.
PC Business Performance and Challenges
HP CEO Enrique Lores highlighted in an interview that the company managed to "improve performance in a tough market" by recording sequential growth in EPS, operating profit, and free cash flow. The company’s PC business also saw an increased market share, both sequentially and year over year, with improving operating margins.
However, Lores also noted that "PC prices are not improving as quickly as we expected." He attributed this to high levels of industry-wide inventory pressuring pricing, despite the stronger than expected demand for consumer PCs. Corporate hiring slowdown and other factors have also led to a decrease in enterprise PC demand. Lores anticipates at least one more quarter of aggressive price competition before inventories normalize.
Printer Segment Performance and Outlook
In terms of the company’s printer business, Lores reported particularly soft demand for consumer models. Commercial printers saw a modest decline, while demand in China did not show the expected recovery in the third quarter. Revenue from the Printing group was $4.3 billion, a 7% decrease from last year and below the Street consensus of $4.7 billion.
Revised Forecast and Future Plans
For the October quarter, HP expects non-GAAP profits to be between 85 to 97 cents a share, a range whose midpoint is below the Street consensus for 96 cents. GAAP profits are expected to be between 65 to 77 cents a share. The company has also revised its full-year non-GAAP profits to $3.23 to $3.35 a share, down from the previously projected $3.30 to $3.50 a share.
Despite not repurchasing any stock in the quarter, HP paid down $1.1 billion in long-term debt. Lores revealed plans to start buying back shares in the October quarter at a level high enough to offset dilution from stock-based compensation. More aggressive purchases could occur in fiscal 2024.
Takeaways
HP’s mixed results and downwardly revised outlook highlight the challenges facing the tech giant amid a tough market environment. The company’s ability to improve performance despite these challenges indicates a level of resilience. However, the soft PC prices and weak demand for printers underscore the need for a strategic shift to adapt to changing market dynamics. Although the planned share buyback might be a positive sign for investors, it will be crucial for HP to address the core issues impacting its PC and printer businesses.
