HP Inc. (HPQ) on Q1 2021 Results - Earnings Call Transcript
Operator: Good day everyone and welcome to the First Quarter 2021 HP Inc. Earnings Conference Call. My name is Ailey and I'll be your conference moderator for today's call. At this time, all participants will be in listen-only mode. We will be facilitating a question-and-answer session towards the end of the conference. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to Beth Howe, Head of Investor Relations. Please go ahead. Beth Howe: Enrique Lores: Thank you, Beth and thank you everyone for joining the call today. I hope you and your families are safe and well. HP had an exceptional start to the year with strong revenue and profit growth in Q1. We are benefiting from the strength of our portfolio and the diversity of our businesses. We continue to evolve our business model to meet changing customer needs, while expanding into adjacencies to grow our addressable market. And we are driving an aggressive transformation agenda by rigorously managing our costs, while investing to drive future growth. Simply put, we are doing what we said we would do and our strategy is working. Our Q1 results are impressive across many dimensions. We delivered strong topline growth with net revenue up 7% to $15.6 billion and balanced growth across personal systems and print. We delivered strong bottom-line growth with $295 million in non-GAAP operating profit dollar flow through and double-digit profit growth in both personal systems and print. We delivered non-GAAP net earnings of $1.2 billion, up 24% with $0.92 of non-GAAP diluted net earnings per share. This is up $0.27 compared to Q1 of last year. Marie Myers: It's great to be with all of you today and I wanted to thank Enrique for his trusted me as his finance partner. I'm excited to take on the CFO role after more than two decades at HP. I'm looking forward to getting to know the investment community as I settle into my new role. It's clear that HP remains focused on executing each quarter, while also positioning the company for the future. And our results demonstrate this balance of delivering in the near-term, while investing in growth and leading through this dynamic environment. Question-and: Operator: Thank you. We will now being the question-and-answer session. Our first question today will come from Shannon Cross with Cross Research. Shannon Cross: Thank you very much. And Marie, I just wanted to congratulate you on the new role. My question I'm going to -- it's a two-part question, so I'll just leave it to one question today. I was wondering, Enrique, can you talk a bit about sustainability and sort of beyond the quarter that you've guided to? And that's one of the big questions I think people have right now. Maybe if you can -- you put it to shortages in PCs lasting until third quarter. So maybe you can talk on the PC side a little bit about what you see long-term for the market? And what might support the PC business sort of in future quarters. And then, if you could turn to printing, if you can talk a bit about what Print Plus means for the long-term model? And how you see that impacting margins as well as discussing a bit, because I think maybe it's underappreciated how the shift to Inkjet is going to help margins long-term since you own the whole Inkjet stack and have to partner with Canon for laser. So if you could maybe address those two parts, that is my -- completes my question. Thanks. Enrique Lores: Okay. Thank you Shannon and I will try to answer all your points. So let me start with sustainability of the momentum that we see. And I would say that, we are very optimistic about what we -- what are our expectations for the market for the coming quarters. We think that many of the underlying trends that are driving demand today are going to stay. I think the pandemic has made technology clear necessary for people to work to entertain to live. And this is going to continue to drive very strong demand for PCs and for home printers for the foreseeable future, but especially for PC. We also think that as offices will reopen. We are going to see an increase of demand on the PC space because will have to invest on PCs again to make their employees productive. And we are going to continue to see a shift towards notebooks that also helps on the demand side as the renewal cycles are shorter. We also think that the need to -- the hybrid model of working between office and home opens new opportunities for us on the printing side to offer new services create new services by combining both. So overall again, we see that this is creating an opportunity for us not only to leverage new opportunities, but really to continue to drive change and to continue to gain momentum. If I go now to the second part of your question on PCs, we expect to continue to see very strong demand for PCs in the coming quarters. And this strong demand is what is creating the supplies the component shortages that you were mentioning. We have provided strong guidance today both for the quarter and for the year. And this is based of course on the visibility that we have today for components what we think we are going to be able to hit, if we get more components we could do even better. And then your final question on Print. As you know we launched HP Plus during last quarter the reception has been very positive in terms of both adoption of the end-to-end model and also feedback from customers in terms of the value proposition and feedback from partners. So going I would say, we are optimistic about the results we have seen. And as you know we are going to expand into more countries and more categories during the coming months until we complete the rollout in the middle of 2022. You were also asking about the impact on margins. Let me start there and maybe Marie will complement that. Clearly we see a benefit from the mix moving into India later because as you know we end the full end-to-end system. But this quarter we are also seeing a strong benefit from pricing. Especially on hardware that is really helping to increase the profitability on print. Marie Myers: And yes. Thank you for your Shannon. Yes look we expect our print margins to remain strong throughout FY 2021 and we expect our operating dollars to grow an operating profit rate to be at the higher end of the 16% to 18% range for 2021. And in Q2 we'd expect to be above the range as well. Operator: And our next question will come from Katy Huberty with Morgan Stanley. Katy Huberty: Yes, thank you. Good afternoon. I want to ask a clarification first. You said in your prepared remarks that you see PCs growing through 2021, does that mean that you will see growth in each of the four quarters? Obviously you grew strong in 1Q? Or is that just implying that you will grow for the full year? And then in terms of my question just following up on the print business can you talk about how much channel inventory rebuild contributed to print revenue in the quarter. And Marie you made it clear that you expect Print margins at the upper end of the range, but why would they come down sequentially given that the pricing environment remains quite favorable? Enrique Lores: Okay. Thank you, Katie. Let me start with a clarification. When I was talking about PC growth to continue, I was referring to market. As I was saying in answer to Shannon, we expect the market to continue to be very strong both this year and in the long term. And then let me offer a data point. If we look at the projection that we have for PC market in 2021, the one we have now and we compare it to the projection that we have for 2021 before the pandemic started the market is 45% bigger. So this talks about the growth that we have seen in PCs and really the -- why we are so optimistic about this business going forward. And now Marie will talk about the margins for print in Q1. Marie Myers : Actually I was going to move on and just cover your question around channel inventory Katy. So look with respect to that overall channel inventory is below what we believe are healthy appropriate levels for print. And that's really as a result of that strength that we're seeing in consumer. And right now we're also below the range and that's driven by that demand in home. We do expect however some replenishment of stock throughout our partner ecosystem into Q3 and that's going to help to bridge some of that demand from our customers. So overall, we want to make sure that our partner ecosystem is very well positioned to satisfy that demand. Operator: Our next question will come from Toni Sacconaghi with Bernstein. Toni Sacconaghi: Yes. Thank you. I have two questions as well. First, if I look at your guidance for the full year, it implies an EPS decline at the midpoint down more than 20% in the second half versus the first half. Typically seasonality would point to EPS being up 10% in the second half. So I was wondering if you can comment on that. Are you being conservative? Because it sounds like you're going to be supply-constrained through potentially Q3, or are you believing that this very favorable price environment is going to come off. So are you expecting this deceleration because of conservatism? Are you expecting it because of weaker than normal sequential revenue growth? Or are you expecting it because you expect margins to go down to lower levels in the second half? And then I have a follow-up please. Marie Myers: Right. Hey, Toni, good afternoon. It's a pleasure to meet you. So, look, frankly Toni we've provided actually a very strong guide for the year. And we're investing for our future. In fact, we expect revenue growth in FY 2021 and EPS to be up 38% to 43% and free cash flow growth as well. So, while to your point this is front-end loaded in the first half, the second half EPS growth is actually 23% to 32% of the 111 that we actually delivered last year. And this actually includes earnings growth as well as the benefit of lower shares. So given the current environment as you could imagine we are modeling multiple scenarios for the second half. So look all-in-all, we believe that this is a prudent guide based on what we know today. And clearly, if we can do better we absolutely will. Toni Sacconaghi: Okay. I guess, I was trying to get a better sense of whether there was more confidence in the revenue trajectory or the margin trajectory. But just in terms of the follow-up, I want to better understand this restocking whether this is hardware or supplies are both on the print side is it principally consumer. So I presume your stock is going down on the corporate side since demand is much weaker and your channel inventory in dollars is going up on the consumer side and that's obviously very, very favorable. But you talked about this being a benefit last quarter this being a benefit this quarter that's potentially being a benefit next quarter. I'd like to understand exactly what that benefit is. And then maybe you could kind of zoom out a bit and just talk about how we should think about normalized supplies growth. I think over the last eight or nine years, it's gone down about 4% per year. The aspiration was to get to flat supplies growth. I think it took you a little longer to get there. You haven't really provided an update on how you think about supplies growth sort of in a more normalized environment how should we think about that? Thank you. Enrique Lores : Great. Thank you Toni. Let me start and let me emphasize that we are very confident on both the revenue and profit projections for the year and this is what supports the strong guide that we have provided today. In terms of channel inventory the comments from that we made in the prepared remarks are not only for supply, but also for hardware, and we continue to be across the board in PCs, printers and supplies below what we think are the ideal inventory levels that we have for the channel. So that's -- this is where we are today. And all this is driven by the very strong demand that we continue to see especially, on our home products. And now let Marie explain what do we see on supplies? And what do we think is an impact on the replenishment this quarter? Marie Myers: And thanks Enrique. So Tony, looking at supplies performance there's sort of really three key dynamics to discuss. First of all, ongoing demand in consumer supplies with work-from-home and learn-from-home and there are ongoing challenges in commercial print as you know. And then secondly there's that favorable pricing environment, which was actually a tailwind. And then thirdly, the year-over-year compares also benefited from that replenishment of stock which was consistent with what we had indicated on the call in Q4. Now if you adjust for the impact of inventory movements, we estimate that supplies revenue was down roughly a 1% year-on-year. As you know, we have a multi-tiered channel. So this is our best estimate based on the data we have including our estimates for product across the channel and end-user stock. So this replenishment should have a short-term benefit to supplies revenue. Enrique Lores: I'm commenting on the projections for the future, Tony. As you know, we are -- we have redesigned the strategy of the company to reduce the dependency on supplies to deliver our goals. This is why the subscription programs HP Plus are so critical. And we are very pleased with the progress that we're making on that front. We shared in the prepared remarks that we reached nine million subscribers on Inc. which means we added one million subscribers this quarter which is the factor and the most we have done in the history of the program. So clearly that is accelerating. And at the same -- as I also shared before, we are really pleased with the response that we have got on HP Plus and we are also making good progress on what we call big ink and big toner for in emerging countries which are a key part of our strategy as well. Operator: Our next question will come from Amit Daryanani with Evercore. Amit Daryanani: Perfect. Thank you. It looks like I really have no printing questions for you guys anymore. But I do want to talk about free cash flow. And if I look at the fiscal 2021 guide I think you talked about $4 billion of free cash flow. It's really a modest uplift from the $3.9 billion we did in fiscal '20. So really just help me understand with revenue up the way it is and I think EPS is going to be up 35%, 40%, why is free cash flow up $100 million and change? Just what are the puts and takes that would be really helpful? Marie Myers : Yes. Good afternoon, Amit. So first of all, look at start-up and saying look, we're really pleased with the results of free cash flow and what we saw in the quarter. Now as we look forward to FY 2021 a bit, we expect free cash flow as I said in my prepared remarks to be at least $4 billion and in that is being driven by the earnings growth in both PS and print. And it is being sort of the headwind that we do have is it will be partially offset by changes in working capital, which we expect to -- from higher expected inventory and AR. And that's being driven obviously by the environment that we're in with PS. Amit Daryanani: Got it. And then I guess, Marie, really from your perspective as you step into the CFO role and your background as the Chief Transformation Officer. I'd love to get a sense on as you go forward how do you go between managing the need to reduce costs and optimize margins versus perhaps investing for growth as you go forward? And as you think about HP over the next two, three years, what are the big priorities for the company for investments? Marie Myers : No. Thanks, Amit. Look, frankly, I believe that great companies like HP focus on the end. We have to do both. We have to reduce costs and we have to make the right investments for the future. So I can tell you as the CFO, I'm going to be relentless about going after inefficiency and making sure we're driving value from our investments. I think my role is the Chief Transformation Officer really teed me up nicely for that outlook. Now with respect to investments, I'm going to turn it over to Enrique to add some color there. Enrique Lores : And before I do that let me emphasize the comment from Marie about the end. We need to continue and we will continue reducing cost and we will continue to invest in areas where we see opportunities for the future. And my answer is not going to surprise anybody because this is the strategy we have been executing during the last years. It's about modernizing our core businesses both personal systems and print. We see opportunities to create value on both, it is about expanding into adjacencies. And yesterday, we shared the acquisition of HyperX that is an example of a very attractive adjacency for us, and we are also investing to create new businesses in industrial graphics in 3D printing, in microfluidics. And we see also the need to invest in improving our digital infrastructure that will help us to create new business model, but as Marie was saying, also to become more efficient leaner and really being able to respond to our customers in a better way. This is the strategy, we have been executing. The results show that it is growing and this is where we are going to be investing going forward. Operator: Our next question comes from Matt Cabral with Credit Suisse. Matt Cabral: Yeah. Thank you. Enrique, you just mentioned Hyperx. I wanted to dig a little bit more into that. I guess, first just a clarification. I saw in the release you guys said, it's EPS accretive, but wondering if you guys can comment on the revenue contribution you expect from Hyperx going forward? And then more broadly, just wondering for your perspective on PC gaming and just how we should think about sustainability there once people start leaving their homes in a more normalized manner? And just how you think about Hypera's peripheral spitting versus your OMEN brand within the lineup? Enrique Lores: So first of all, let me start on gaming. Gaming is a very attractive opportunity for us both on the hardware side, where we have been growing significantly during the last quarter and where we expect to continue to see growth in the coming years. More and more people are using gaming at their main entertainment and this is driving growth today and will continue to drive growth in the future. When we look about gaming the peripheral opportunity is especially attractive. A gamer spends about 15, 16 more money on accessories than a normal PC user. And when we think about that opportunity the acquisition of Hyperx makes us really excited about the opportunity of really capturing that. Hyperx is the leader in gaming headsets they have a very strong portfolio on microphones mic keyboard. And really the growth – the value proposition of the acquisition is very clear. We are going to accelerate that growth by leveraging our geographical presence and our broader retail presence, as well as we will be taking their portfolio and expanding into new segments like commercial. Soil is all about growth and this is – and this growth is what makes it accretive for us in 2022. Matt Cabral: Thanks for that. And as my follow-up, I wanted to broaden out the discussion on M&A and just talk about how you think about M&A strategically, and I heard in the prepared remarks that the plan is still outsized buybacks and less a better opportunity comes along. So maybe just help us understand the criteria you think about that trade-off between repurchases and other uses of capital going forward? Enrique Lores: Our approach has not changed from what we have been communicating during the last quarter. We continue to believe that our stock is undervalued and we are going to continue to buy aggressively our shares. Marie mentioned that, we are going to be buying at least $1 billion of shares every quarter. And at the same time, we are always looking for opportunities to accelerate our strategies through M&A. We are looking at opportunities in the core businesses in adjacencies, and also to support our new businesses. And the criteria are very simple. Any M&A, we will do – will have to be aligned to the strategies we have explained. I will have to have attractive financial returns at a minimum a better ROI than buying our own stock. And third, we need to have a strong operational plan to execute on the value proposition of the acquisition. These are the criteria we have been applying. This is what we used to decide to acquire Hyperx and this is how we think about M&A. Operator: Our next question comes from Krish Sankar with Cowen & Company. Krish Sankar: Yeah. Hi. Thanks for taking my question. And congrats on the solid results. And Marie congrats on the full-time CFO title. I have two quick questions. First, Enrique or Marie, is there a way to quantify what would be the upside to revenues if you had no supply constraints? And then I had a quick follow-up. Enrique Lores: Let me take the question. What you have in the guide is what we think we – based on the current supply that we see available, we can deliver, of course, if there was more supply, we will be able to drive more, but I don't think we will quantify what this number is. But let me tell you is, as I said in the prepared remarks, our backlog is at a record high. So it will be a significant number. But again, we are seeing shortages given how strong the demand is across the board. Krish Sankar: Got it. Got it. Thanks, Enrique for that. And then as a quick follow-up. The gross margins in the January quarter were really strong. What were the drivers there? And how to think about gross margin for the rest of the year, especially as component costs get inflationary for you folks? Marie Myers: Yeah. Shankar thanks for the kind words. So look fundamentally, it's just all about demand frankly outpacing supply and really creating that favorable environment. So it's basically just the laws of supply and demand which helped us with better pricing in the quarter. So regardless of whether you're sort of talking year-on-year and quarter-on-quarter that improvement in gross margin was primarily driven by favorable pricing which showed up as fewer promotions and as cost improvements. Operator: Our next question will come from Wamsi Mohan with Bank of America. Wamsi Mohan: Yes. Thank you. I was wondering if you can go back to print margins for a second and look at this on a quarter-on-quarter basis. When we look at the sequential revenue improvement that was about $200 million in Print the Print profitability went up by $300 million. So maybe you can help us think through how much of that was pricing on hardware where there is fixed cost leverage that you might be recognizing versus higher mix on HP Inc. versus laser tower. If there's a way to dissect this somewhat differently in the $300 million and purely replenishment has a role there too, any way to maybe size those different components? And also if we can split between hardware and supplies I think that would give us a better sense of how the trajectory of this good progress? Thank you. Marie Myers: Sure, no thanks for your question. And so look the Print rate really benefited from improved gross margins, particularly in home hardware and that was driven by that favorable pricing that I mentioned earlier. And it was particularly in the consumer side. And some of those -- and then we had reductions from COVID-related supply chain costs that we had in Q4 and then that was partially offset by higher consumer mix and lower supplies mix. So that and all is what contributed to the rate. And overall we're seeing the strength and resiliency of our broad Print portfolio and leadership across customer segments and that's really positioned us very well against our competition. Wamsi Mohan: Thank you. Operator: Our next question will come from David Vogt with UBS. David Vogt: Great. Thank you. Maybe just going back to the component shortage issue for a second. It's been persistent for some time now and there's been commentary across different industries that lead times are lengthening across the board. I know inventory is up this quarter 49 days 43 last quarter. But can you give us more qualitative discussion on how you're thinking about remediation going forward in your future procurement plans. In case there's a greater disruption and what that might mean for your top line going forward? Thanks. Enrique Lores: Sure. So as I said before, the shortages that we are seeing are really driven by the very strong demand that we are getting across the full portfolio. We of course are taking any action we can to mitigate the impact and make sure that we can deliver even more than what we have in the plan. One of the big things that we have decided as Marie mentioned before is to increase the amount of inventory that we have on hand. This will help us not only to increase the delivery of the shipment of products, but also to be able to ship more products in case some components are made available during the quarter. We are also building direct connection with suppliers that until now will be managed from our ODMs usually suppliers of low-cost components because we have seen that it's important to really establish a direct connection with them and in some cases even buy products directly from them. And this I would say are the two big things that we have already done and that we expect will help us to manage the situation during the coming quarters. David Vogt: And maybe just a quick follow-up on that. So when you think about sort of the inventory that you're taking in and that you're going to procure going forward, is there any sort of commentary or guidance you can give us in terms of what the margin impact might look like from that inventory today going forward as you burn through that inventory maybe later this year into next fiscal year? Enrique Lores: I think given how strong our demand is if you are concerned about obsolescence of some of the inventory, I think the risk is extremely low because we really have very strong demand and we expect it to continue during the coming quarters. In terms of cost of components, we are expecting that in some cases cost will be increasing during the coming quarters but all of this is built into our guidance, and built into the comments that Marie made before in terms of operating margin during the coming quarters. Marie Myers: And just a follow-up on Enrique's comment. As a result then we would expect from an overall basket of commodity pricing perspective for those prices to be higher than what we've seen in Q1 going forward as well. Operator: Our next question will come from Jim Suva with Citigroup. Jim Suva: Thank you very much and congratulations on the very strong results and outlook. When we dive – I have one question. When we dive into the results on PCs, yes you are growing, but it seems like some of your competitors, especially your North America competitors growing much stronger than you. You did highlight that you grew a lot in Chromebook. So I'm wondering is the strategy there to really focus on education and Chromebooks or profit share gains or market share maintaining, even if you lose some share? I just wanted to revisit your strategy in the PC side, when we look at the data versus the industry? Enrique Lores: Sure. Let me be very clear Jim. So we had a very strong quarter in absolute terms on PCs, revenue growth, unit growth, profit growth but we didn't on relative terms. And being as competitive as we are, this is not something that we are satisfied about. As I explained before, we are looking at what can we do and what will we do to improve our relative performance. We have already taken some actions to do that by increasing inventory and changing how the connections that we have with certain component providers and this will be helping us to improve our performance going forward. We are really using this as a catalyst to optimize even further our operational capabilities and this is what great company do and what we will continue to do, because again, we like to win and this is what we will continue to do going forward. Enrique Lores: So having said that, I think we are close to time. So let me use this as an opportunity to wrap up. First of all I want to repeat some of the comments I made during the prepared remarks. We are doing what we said we would do. And our strategy is working. We have had a very strong start of the year and we are confident in the projections that we have for 2021 and beyond. We see growth opportunities in our core markets in the adjacencies and also in the new businesses that we are creating. And we are really leveraging the opportunities that we see to accelerate our strategy, accelerate our growth, which gives us great confidence in the future of the company. So again, thank you for joining us today and looking forward to continue to talk to all of you in the future. Thank you. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
HP Stock Gains 5% Following Q2 Beat
HP (NYSE:HPQ) rose more than 5% in pre-market today after announcing its Q2 earnings, which included higher-than-expected net revenue and an adjusted EPS of 82 cents, slightly above the 81 cents forecasted.
The company reported net revenue of $12.8 billion, a 0.8% decrease from the previous year but surpassing the $12.59 billion estimate. Personal systems revenue increased by 3.1% year-over-year to $8.43 billion, exceeding the expected $8.28 billion. However, printing revenue declined by 7.8% to $4.37 billion, just below the anticipated $4.38 billion.
Looking forward, the company forecasts an EPS between 78 to 92 cents for Q3, compared to the Street estimate of 85 cents. For the full year, the company projects an adjusted EPS of $3.30 to $3.60, slightly revised from the previous forecast of $3.25 to $3.65, compared to the consensus estimate of $3.42.
Barclays Updates Rating on HP Inc.
- Barclays shifts its stance on HP Inc. to Equal-Weight, raising its price target from $30 to $33.
- HPQ reports a slight year-over-year earnings per share increase to $0.82 from $0.80, despite a minor decrease in net revenue.
- The company faces a significant 42% drop in GAAP net earnings per share but shows resilience with a modest rise in non-GAAP diluted net EPS and operating margin.
HP Inc. (NYSE:HPQ), a leading global provider of personal computing and other access devices, imaging, and printing products, recently found itself in the spotlight following Barclays' decision to update its rating on the company. On Thursday, May 30, 2024, Barclays shifted its stance on HPQ to Equal-Weight, essentially advising investors to maintain their current positions without urging buying or selling. This adjustment came as the stock was trading at $32.8, with Barclays also raising its price target for HPQ from $30 to $33, as reported by TheFly. This move by Barclays underscores a cautious optimism about HPQ's financial health and market position.
The backdrop to Barclays' updated rating is HPQ's performance in the second quarter of 2024, which was marked by a mix of achievements and challenges. During the earnings conference call, key figures including President and CEO Enrique Lores and Interim CFO Tim Brown, highlighted the company's financial outcomes. HPQ reported earnings of $0.82 per share, slightly above the Zacks Consensus Estimate of $0.81 per share, indicating a modest year-over-year improvement from $0.80 per share. This performance suggests a resilient operational capability, likely contributing to Barclays' reassessment.
However, the company's financials also revealed areas of concern. HPQ experienced a slight decrease in net revenue, down 0.8% to $12.8 billion from the previous year's $12.9 billion. Additionally, there was a significant 42% drop in GAAP net earnings per share (EPS), from $1.1 billion in the fiscal year 2023 second quarter to $0.6 billion in the current reporting period. Despite these challenges, HP managed to increase its GAAP operating margin and reported a modest rise in non-GAAP diluted net EPS, which could have influenced Barclays' decision to maintain an Equal-Weight rating.
The company's cash flow metrics also saw a downturn, with net cash provided by operating activities and free cash flow both declining. This financial landscape, characterized by a mix of stable earnings per share and declining cash flows, presents a nuanced view of HPQ's current financial health. It's this complexity that Barclays' updated rating and price target likely aim to reflect, balancing the positive aspects of HPQ's performance with the financial challenges it faces.
In the broader context, HPQ's stock price movement and market capitalization also play a crucial role in understanding Barclays' stance. The stock experienced a slight decrease to $32.8, with a trading volume of 11.77 million shares. This price movement, within the context of HPQ's year-long price range and its substantial market capitalization of approximately $32.09 billion, suggests a level of market stability and investor confidence that could justify a hold position. Barclays' decision to adjust its rating and price target for HPQ, therefore, seems to be a calculated response to the company's mixed financial results and market performance.
HP Inc. Quarterly Earnings Report Preview
- HP Inc. is set to release its Q2 fiscal year 2024 earnings on Wednesday, May 29, 2024, with Wall Street expecting an EPS of $0.81 and revenue of $12.6 billion.
- The company's strategic cost management and improved product mix are anticipated to support its financial performance.
- Financial metrics such as a P/E ratio of 9.51 and a P/S ratio of 0.60 highlight HP's market valuation ahead of the earnings announcement.
HP Inc. (NYSE:HPQ) is gearing up for its quarterly earnings report, a significant event for investors and market watchers alike. Scheduled for Wednesday, May 29, 2024, after the market closes, the anticipation builds around the company's financial performance for the second quarter of the fiscal year 2024. Wall Street sets its sights on an earnings per share (EPS) of $0.81, with revenue estimates hovering around $12.6 billion. This projection places HP in the spotlight, as stakeholders eagerly await to see if these expectations will be met or surpassed.
HP Inc. stands as a prominent player in the technology sector, known for its wide range of personal computing and printing products. The company's ability to maintain a competitive edge in the market is closely watched, especially in comparison to its rivals. As the earnings report date approaches, the focus sharpens on HP's financial health and its strategies for growth amidst the challenges and opportunities within the tech industry.
The company's performance this quarter is believed to have been bolstered by disciplined cost management and an improved product mix, as highlighted by Zacks Investment Research. This strategic approach could play a crucial role in achieving the anticipated earnings and revenue figures. Additionally, Forbes has recently spotlighted HP as a stock to buy, citing the post-holiday week's historical trend of the S&P 500 rising more often than not. This period's mildly bullish end-of-month strength could signal an expectation for higher stock quotes for HP, further fueling investor interest.
Analysts have adjusted their consensus on HP's EPS downward by 0.6% over the past 30 days, reflecting a slight recalibration of expectations. Despite this adjustment, the projected modest year-over-year increase in EPS of 1.3% and a forecasted revenue decline of 2.9% to $12.53 billion indicate a nuanced view of HP's financial trajectory. These figures underscore the importance of closely monitoring earnings estimate revisions, as they often influence investor reactions and can provide insights into the company's short-term stock price movements.
HP's financial metrics, such as its price-to-earnings (P/E) ratio of approximately 9.51 and a price-to-sales (P/S) ratio of about 0.60, offer a glimpse into how investors value the company's earnings and sales. The enterprise value to sales (EV/Sales) ratio of roughly 0.77 and the enterprise value to operating cash flow (EV/OCF) ratio of approximately 10.98 further illuminate HP's market valuation in relation to its sales and operating cash flow. These ratios, alongside the earnings yield of about 10.52% and a debt-to-equity ratio reported at -6.67, provide a comprehensive view of HP's financial health and investment appeal as it steps into its quarterly earnings announcement.
HP Reports Q1 EPS Beat, But Revenues Miss
HP (NYSE:HPQ) reported its first-quarter results, with earnings per share of $0.81, aligning with analyst forecasts, but its revenue of $13.2 billion did not meet the anticipated $13.57 billion.
Looking ahead to the second quarter of 2024, the company projects its earnings per share to range from $0.76 to $0.86, against analysts' expectations of $0.81.
For the entire fiscal year, HP's earnings per share are expected to be between $3.25 and $3.65, compared to the consensus estimate of $3.45. The company also forecasts its free cash flow for the year to be in the range of $3.1 to $3.6 billion.
HP Stock Up 2% Following Q3 Earnings Report
HP (NYSE:HPQ) experienced a 2% gain in its stock price intra-day today following its fourth-quarter earnings release.
The company reported revenues of $13.8 billion, a 6% decrease from the previous year and slightly below the expected $13.82 billion. Its earnings per share (EPS) of $0.90 met market expectations.
For the first quarter of fiscal year 2024, HP anticipates its EPS to be between $0.76 and $0.86, against a consensus expectation of $0.86. Looking at the full year ahead, HP forecasts its EPS to range from $3.25 to $3.65, compared to the Street estimate of $3.44. The company also expects to generate a free cash flow of between $3.1 billion and $3.6 billion in 2024.
HP’s Rating Raised at Citi
Citi analysts raised their rating on HP (NYSE:HPQ) to Buy from Neutral, adjusting the price target to $33, which suggests about a 20% upside. This positive outlook is attributed to potential advancements in the PC industry, including possible AI integrations.
Furthermore, significant anticipated cost reductions are expected to enhance profit margins and earnings. The valuation also looks promising with prospects of increased free cash flow and share repurchases. Market intelligence suggests a strong demand in the supply chain and completion of inventory cycles, which is in line with typical seasonal patterns.
HP is showing signs of gaining a larger market share, with the future of AI in the PC sector being a key factor, though this remains to be confirmed with more data. The analysts believe HP is on a trajectory to achieve higher financial multiples, bolstered by a stronger free cash flow in an improving PC market.
HP Shares Gain 2% After BofA Securities Upgrade
BofA Securities analysts upgraded HP (NYSE:HPQ) from Underperform rating to Buy with a $33.00 price target. As a result, shares gained more than 2% intra-day today.
This upgrade comes after HP shares fell nearly 25% since July due to the company's lowered EPS and FCF guidance linked to a delayed PC recovery. Additionally, Berkshire Hathaway, led by Warren Buffett, has reduced its stake in HP recently.
The bank's decision is based on several factors, including the expectation that HP will reach a bottom in its free cash flow during the fiscal year 2023, an anticipation of growth in the company's overall operating profit dollars, and the belief that, as free cash flow normalizes, HP will resume its capital return activities.
