HP Inc. (HPQ) on Q2 2021 Results - Earnings Call Transcript
Operator: Good day everyone and welcome to the Second Quarter 2021 HP Inc. Earnings Conference Call. My name is and I'll be your conference moderator for today's call. At this time, all participants will be in listen-only mode. 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: Good afternoon everyone and welcome to HP's second quarter fiscal 2021 earnings conference call. With me today are Enrique Lores, HP's President and Chief Executive Officer; and Marie Myers, HP's Chief Financial Officer. Enrique Lores: Thanks Beth. Good afternoon everyone and thank you for joining the call. I want to start by acknowledging the state of the pandemic, particularly in countries such as India. We are doing everything we can for our employees, customers and partners during this difficult time. While some parts of the world are beginning to improve and reopen, there is much more work to do. Turning to our results. It was another exceptional quarter of double-digit top and bottom line growth in which we delivered well above our guided range. Our performance reflects the relevance of our technology in an increasingly high level, the resilience of our business model, the operational excellence of our team. In addition to summarizing our results, I also want to highlight secular trends driving sustained demand across our portfolio. HP technology and services are at the heart of hybrid work. We are accelerating our strategy to drive long-term sustainable growth. This includes continuing to transform the way we operate and deploy our substantial cash flow to maximize value creation. Marie Myers: Thanks, Enrique. HP's second quarter results highlight both our operational strength and the breadth of our portfolio. We are demonstrating our ability to meet customer needs and continuing on our transformation journey all while growing operating profit, generating strong free cash flow and maintaining our robust capital returns, while continuing to make investments in the company for our future. Turning to the details of the second quarter. Q2 net revenue was $15.9 billion, up 27% nominally and 25% in constant currency. Regionally, in constant currency, Americas increased 32%, EMEA increased 19%, and APJ increased 23%. The year-on-year growth rate benefited from the prior-year impact of COVID and supply chain disruptions. Demand continued to outpace supply and we ended the quarter with elevated backlog in both Personal Systems and Printing. At the highest since the split, gross margin was 21.7%, up 1.7 points year-on-year. The increase was primarily driven by favorable pricing, including historically low promotion expense and favorable currency, partially offset by higher costs. Non-GAAP operating expenses were $2 billion or 12.6% of revenue, up 10 basis points year-on-year. The increase in operating expenses was primarily driven by higher variable compensation as a result of the very strong performance this year as compared to Q2 2020, as well as increased investments in innovation and go-to-market. Non-GAAP net OI&E expense was $64 million for the quarter. Non-GAAP diluted net earnings per share increased 82% to $0.93, with a diluted share count of approximately 1.2 billion shares. Non-GAAP diluted net earnings per share excludes net benefits totaling $70 million, primarily related to other tax adjustments and non-operating retirement related credits, partially offset by restructuring and other charges, as well as amortization of intangible assets. As a result, Q2 GAAP diluted net earnings per share was $0.98. Operator: Thank you. Our first question today comes from Amit Daryanani with Evercore. Amit Daryanani: Good afternoon. Thanks for taking my question. I guess I have a few. The first one I guess was hoping if you could talk a little bit about the Print margins in the April quarter. I'm somewhat surprised they were down on a sequential basis by nearly 200 basis points even though the supply mix I think was fairly stable in July versus April. So, could you maybe just touch on what happened to the Print margins in the April quarter, and how do we think about it in the back half of the year? Marie Myers: Sure. No. Thanks, Amit and good afternoon. So the decline we saw in the Print operating rate was really driven by several factors. So first of all, some of the unfavorable cost in commodities, factory, and logistics and secondly by investments that we made in OpEx across R&D, marketing to support future growth and higher variable comp. And look, overall I'd just say we have seen strength and resiliency in our Print portfolio, which really positions us well against the competition. And as we look ahead into the future, we do expect our margins to be in the long-term range of 16% to 18%. And let me give you just a few things to think about as you think about the second half. So, obviously, the full year was very strong in the first half. So, we expect to be toward the higher end of the range. And just a couple of other points I would add is, some of the exceptional benefit that we saw in H1, particularly in favorable pricing will start to diminish. And so, we would expect that our mix as well would normalize as the office reopens. We're likely to see higher commodity cost, logistics costs, and that will potentially impact our ability to meet demand. And then finally, there is some seasonal mix headwinds in Q2 as – in supplies as Q2 is typically our strongest quarter for supplies. So, just keep that in mind, as you're thinking about the second half, and I'll just conclude that we're in the business of generating incremental OP dollars. Enrique Lores: I think a key point for our performance for Print this quarter is that we are really pleased of how the Print business did. Whether if you look at year-on-year comparison, whether you look at growth, it is really aligned to the trends that we described last quarter, the rebalancing that we see happening between home and office, the growth that we are starting to see in some of the commercial and industrial categories. So Print had a very strong quarter and we expect it to continue through the rest of the year. Amit Daryanani: Got it. That is really helpful. And then if I could just follow-up in comparable dynamic really, Enrique I think a big focus for everyone is trying to understand what is steady state EPS look like for HP over time, especially given the strong performance you've had in the first half, and I think your back half guide sort of implies EPS will decline high single-digits 10% plus in Q3 and Q4. I'm curious, I know you touched on Print, but I’m curious what are the other vectors that are driving the slowdown in EPS, especially given the fact you're elevated backlog? And then do you think the $0.75, $0.80 implied EPS in October quarter is a representation of what normal EPS run rate is going to look like for HP? Enrique Lores: Yes, so first of all, let me talk about the year-on-year comparison how we put things in perspective. EPS for the second half is growing more than 40% from where we were a year ago. So, we're really representing very solid growth. At the same time as you are saying, we continue to see very strong demand across all of our portfolio. We expect this to continue to happen through the second half, but we are going to be limited by supply, given the shortages that we see in the market. And this is a fundamental part of what is driving our guide. As we have done in the past, we are prudent when we guide, we have been in the past and we will continue to be. If we can do better, we will, we could be there better because of better pricing, because we could do better, because of better capacity. So, again prudent guide, we have demonstrated that if we can do better we will do better, and therefore given all the anomalies that we see and this supply constrained, I don't think we should be using the Q4 number to project the business in the future. Operator: Our next question comes from Shannon Cross with Cross Research. Shannon Cross: Thank you very much. I had a question on inventory, both on your balance sheet and then within the channel. Up about $800 million quarter-over-quarter, I'm curious, how much of that was component buying or maybe some end product just given supply chain hiccups? And then Lenovo said today, I think that they see two to three weeks of channel inventory on PCs usually, I can't remember I think it was six to eight weeks is their normal. Can you talk a bit about what you're seeing in the channel and both on the PC and the printer side? And then I've a follow-up. Thank you. Enrique Lores: Let me start and I think maybe before Marie shares some of the numbers, let me share some of the strategy that we have behind it. What we shared last quarter, that we were anticipating some of the supply challenges that we are seeing, we decided to operate with higher levels of HOI and this is what you see reflected in the numbers. So, Marie why don't you give some color on whether the increases in HOI? Marie Myers: Yes. No, absolutely, Enrique. So, let me step back and set some context for you Shannon. So obviously, we've seen that strong demand across peers in Print. And as you know, we're also lapping the factory closures and disruptions from those inventory drawdowns last year and obviously that impacted the system all the way through. And then we're obviously trying to continue to navigate the supply chain challenges given the ongoing nature of the pandemic. So, to approve assurance of supply, we are carrying higher levels of owned inventory and as we said, we do this to navigate during this time. So, HOI at this point is likely to stay elevated to support business growth. And that includes strategic buys to answer your question, where, particularly in CPUs. And then going on to the second part of your question around channel inventory, overall CI in PS, Print, hardware and supplies is currently below historical levels. And our backlog is up frankly quarter-on-quarter, and that gives us confidence on the demand that we are seeing Shannon. Shannon Cross: Okay, great. And then just a question on pricing. I think you noted you expect some normalization in pricing, but what we're hearing is prices are somewhat increasing. So, is this more sort of an average price, so mix impact or what are you seeing, because if there is no supply out there and demand remains strong, I don't see where you might not have some pricing pressure, sorry pricing advantage? Thank you. Enrique Lores: Thank you, Shannon. I think it's worth to go through the pricing discussion business by business. In the case of Print, we are having price increases across the board and you can see in our numbers an increase in the average price. In the case of PCs, pricing rates are growing for price in each category are going up, but overall price is going down because of mix, because of where we are seeing the higher demand in the market. So, prices are up, but because of mix, you may see the average price going down. Marie Myers: And Shannon just to add to Enrique's comments, some of the favorable pricing that we saw in the benefit in the first half is starting to abate in the second half as well. Operator: Our next question comes from Toni Sacconaghi with Bernstein. Toni Sacconaghi: Yes, thank you for taking the question. I just want to – just trying to square the circle on a couple of things, particularly around your guidance. So, seasonally you're typically up in EPS and you're guiding for EPS to be down about 10% sequentially. Revenue is typically up 3% or 4%. Are you suggesting that revenue is going to be lower than normal seasonal or is this all margin pressure? And the reason I struggle with the margin question is, it sounds like your backlog is even bigger. You should be able to sell whatever you have. You have incremental inventory so that should allow you to arguably meet demand better. So, if you're in a situation where people are chasing demand and the mix doesn't fundamentally change, why do you expect pricing to abate? So, I guess a couple of questions in there. One, do you expect an impact to top line that's different from normal seasonal? Or is it all margin in terms of your way below normal seasonal EPS guidance? And then how do we square that margin pressure with the fact that there is really strong demand, you have better inventory to fulfill that demand and you should be able to continue to take price? Marie Myers: Hey, Toni, good afternoon. It's Marie. So, let me walk you through how to think about our guide and specifically. I'll give you a sense of what the headwinds and the tailwinds are looking like. So, first of all, with respect to your comments on revenue, we do expect that revenue will be driven more by available supply than demand and there are increasing margin headwinds versus the first half. With all that said, as Enrique said right at the onset of the call, we are guiding for double-digit operating profit and EPS growth in Q3. And frankly, we believe that this is a prudent guide in the context of the current environment. Obviously, if we can do better, we always will. But let me walk you through what we're seeing from the headwinds and tailwinds to give you some of that color. So on the headwinds, we are seeing component costs and logistics costs in both PS and Print, and they will be an incremental headwind both quarter-on-quarter and year-on-year, and those overall basket of commodities, particularly in panel, ICs and PS and then ICs and resins in Print. And then there are the tailwinds that we've had in the first half around those favorable pricing dynamics. They will start to dissipate as we lap the onset of those historically low promotion expenses. And getting into your comments on tailwinds and how we're thinking about it, demand in both PS and Print continue obviously to be very strong as you mentioned. We're seeing those trends of hybrid work continue, but obviously they are constrained by supply. So, you know, and in addition, just to, kind of wrap up here, as we said, we're going to continue to return capital to shareholders. So, we expect that that at least about $1 billion a quarter. So for the full-year, we expect PS margins will be slightly above the high end of our longer-term range of 3.5% to 5.5% and Print for the full-year at the higher end of 16% to 18%. So, at this point, we remain very confident of our guide and if we can do better like I said, we will. Enrique Lores: And I think Toni, something important to having consideration this year, is that really the business and the market is driven by supply, not by demand. So therefore comparing this year with other years based on seasonality, it will not work, because really the dynamics behind the market are very different. What we continue to see is very strong demand across our portfolio and this is really the key driver is how much supply we can get. Toni Sacconaghi: If I could just follow-up on the pricing dynamics, so, if I look at consumer print ASPs last quarter were up 30%, this quarter were up 27%. If we went to something like zero pricing, it would basically put your operating margins dramatically down in the IPG group. So, I want to understand what is driving this pricing? So, is this purely an absence of discounting? Is this a – we're not building lower end SKUs with lower margin and we're forcing people to take sort of more richly configured consumer printers that have better margin or is it we're actually raising price because we can, because demand is constrained. But obviously 27% ASP growth this quarter, 30% last quarter is helping your economics enormously. As you suggested, it's going to be less, but I want to understand very specifically what is driving that ASP increase? Enrique Lores: I think Toni we, in a situation like the one we are facing, we are doing anything we can to optimize our business and therefore we are guiding all the actions that you were mentioning. We of course have reduced significantly our promotional discounts, because of how strong the demand is. We are still in demand toward higher margin products and of course, in the cases where we can, also our prices are going up because as we said before, we are seeing – we are living in an inflationary environment and whenever we can we will – we have increased prices. Operator: Our next question comes from Katy Huberty with Morgan Stanley. Katy Huberty: Yes, thank you. Good afternoon. I heard you mentioned that PC backlog is up sequentially. Is your Print backlog also up versus the first quarter? And then, can you talk about how the makeup of backlog is changing as you go through the year? Is there any shift from consumer to commercial from Chromebook to other PCs and just mix between hardware and supplies? And then I have a follow-up. Enrique Lores: Let me take that question. Hi, Katy. So, the answer to the first question is, yes. We are seeing an increase in backlog across both PCs and Printers. And in terms of how do we expect this to evolve, is really aligned to where do we see demand coming during the next quarters. As we mentioned before, we expect through the end of the year, an increase in the demand on the commercial side, both on the PC side and also on the Print side, and this is where – because of that, backlog will be moving into this direction. But still we continue to see strong demand on consumer as I mentioned before. Katy Huberty: Great, thank you. And then PC margins this quarter were a bit lower than the flat sequential guidance. What were the surprises on costs or mix in the quarter? And then should we expect with cost inflation that PC margins return to that roughly 5% range from a couple of years ago? Marie Myers: Yes, Katy, it's Marie. Hey, good afternoon. So, let me hit up your margin question. So yes, the margins were strong again at 6.7%, which as you know is above the high end of our long-term range and some of that was obviously driven by that strong pricing discipline that we've spoken about, as well as some benefit from currency, but really it was offset by mix and some of those commodity headwinds. And as we get into the full-year, we do expect that margins to be slightly above the high-end of our range of 3.5% to 5.5% and it's going to be driven by the themes that you're hearing today, particularly around those continued shortages in commodities and that's obviously sort of transforming into higher component costs and then knock on cost and logistics. And then I'd finally just add, we are starting to enter a period where the impact of favorable pricing is going to start to diminish as we start to lap that period in time. Operator: Our next question comes from Tim Long with Barclays. Tim Long: Thank you. Yes, two if I could. First on the Print side, could you talk a little bit about, you mentioned some of the user numbers for the as-a-service offering both for consumer and commercial. It seems like it's, you know pretty steady growth here. Could you talk a little bit about some of the underlying drivers beyond that, maybe usage or anything else that's potentially showing the strength there other than just the user base? And then second, if – you talked about another quarter of very strong Chromebook, could you just talk a little bit about the impacts there on the model margin ASP? And then also as you expect to see a little bit of normalization to PC growth. Is the expectation that the rapid growth in Chromebook will be something that will pull back or do you think that's something that could start replacing other mid and lower tiers of the of the PC segment? Thank you. Enrique Lores: Many questions in one question. I will try to go one by one. So, starting from Print, for the dynamics we are seeing are very similar to what we explained a quarter ago and the evolution is what we were expecting. Before to pre-pandemic levels, we continue to see our home business to perform better than what we were projecting. And this is driving the demand that we see both on-premise and also on supplies. And on the office side, we have seen the opposite effect. As many offices are still closed and people are not going back to the office, the overall office business continues to be below where it was before the pandemic. Through the end of the year, we expect the situation to reverse as offices will reopen, we expect our office business to perform better and at the same time more people will be – less people will be working from home, we expect that it will have also an impact, a negative impact on our home business. So, a similar trend to what we expected in . In terms of demand on the Chromebook side, we continue to see very strong demand from education. We have – this is what is driving the growth of Chromebooks and this is what also when we were talking before about the ASPs on the PC side and the mix there, this is what we have in some of the impact in the pricing on the PC side, because Chromebooks overall have lower prices than the rest of the PC portfolio. Operator: Our next question comes from Aaron Rakers with Wells Fargo. Aaron Rakers: Yes, thanks for taking the question and congratulations on another solid quarter. First question I have a follow-up is, when we look at the results of the commercial business starting to recover, I think you reported 10% growth. I think your peer reported growth around that tonight. So, I'm curious of how you're thinking about the back-to-work, back to office trend on the commercial PC side, any thoughts on kind of the installed base, the age of the installed base, just how you think that demand shapes up through the course of the year? Enrique Lores: Sure. So again, similar to what we shared a quarter ago, we expect the demand on the commercial side to start to recover and we are starting to see some recovery as you are saying. What we are seeing from our clients is that they are realizing of the need to invest in better equipment for their officers when employees come back and this is really going to be helping both the Print and the PC business as you were mentioning. In terms of dynamics, we continue to see our shift from desktops into notebooks, because even if employees will be going back to their office, we still see the need for companies to offer a hybrid way of working and enabling their employees to work-from-home and therefore, we expect the shift mix from desktops into notebooks to continue. We have talked in the past, overall has a positive impact for the business because of both pricing but also because of the recycle times at PC that notebook has compared to the desktop. Aaron Rakers: Yes. And then as a quick follow-up, just on the free cash flow, I think you've stuck with the 4 billion free cash flow or at least 4 billion for this year. You're raising EPS. I'm just trying to maybe understand why free cash flow wouldn't be stronger and trending higher with the EPS? Marie Myers: Yes, sure. Aaron. Let me go ahead and hit that one up for you. So look, regarding future free cash flow, as you know, this is always driven by our strong net earnings. What we're thinking is that our working capital is going to be a headwind due to some of the decisions we're making to carry more inventory. So look for 2021, we continue to remain confident obviously in our outlook and confident in our guide of at least $4 billion in free cash flow. Enrique Lores: And I think, let me add one more comment. We are really pleased with the progress we have made in free cash flow in Q1 and Q2. The guide that we have provided is of at least $4 billion for the year and as Marie just mentioned, we are really expecting to be at that level. Operator: Our next question comes from Ananda Baruah with Loop Capital. Ananda Baruah: Hey, thanks guys for taking the question. Congrats on the strong results. Two quick ones, if I could. Enrique, based on conversations with corporate customers and given the backlog, do you get the sense that this momentum will actually continue into calendar 2022. Would love to get any updated context there? And then I just have a quick follow-up. Thanks. Enrique Lores: Thank you for the question. And we think that the changes that we have seen driven by the pandemic are going to be permanent and are going to continue to have an impact in 2021 and 2022. More and more people will have – will be working in a hybrid way. We think that will continue to learn from government from the time from school and this is going to continue to have a positive impact on the overall size of the PC market. And therefore, we expect the size of the market to continue to be significantly larger than what we were expecting before the pandemic. Additionally to that as we just described, we also expect to see strong commercial demand through the end of the year. So, this will also help and put even more – drive even more growth on the PC side. Ananda Baruah: And just sticking there, just going back to the questions about mix on the PC side, you talked about strengthening Chromebook and how that, you know as having a, sort of software mix impact on ASCs. Would that not reverse as commercial, so it doesn't – continue to open up, should we not expect that to reverse and carry sort of into 2022 the mix? Enrique Lores: So, in terms of mix, yes, we expect the mix of commercial to go up during the next quarter. And this is why Marie was mentioning before that we expect overall operating profit of Personal Systems to be slightly higher than our guided range through the end of the year. Ananda Baruah: That's great, thanks so much. Enrique Lores: Thank you. Operator: Our next question comes from Matt Cabral with Credit Suisse. Matt Cabral: Yes, thank you. On the Print side, I was wondering if you give us an update on where you stand in trying to refill some of the supplies channel inventory? Just talk about how big of a factor that was in the quarter and how we should think about the contribution from here? And maybe more broadly just an update on your efforts to add visibility as we start thinking about getting below those Tier 1 and Tier 2 distributors that you have out there? Marie Myers: Yes, no, sure, Matt. So, maybe I'll just start it with a quick comment on where we see the channel right now relative to supplies and I think I mentioned earlier that overall our channel inventory levels for the company are sort of below historic levels. And that includes supplies and obviously we continue to monitor that very carefully, so that we can maintain a healthy and appropriate levels. But this quarter given – if you wind it back a year ago, we had the sort of the onset of the pandemic, so we've had that channel depletion that occurred last year. And so we did see some benefit in the year-on-year compare. And from that impact of the inventory movements, we estimate that to be approximately 3% year-on-year. And as you know, we have a multi-tiered channel. So, this is our best estimate based on the data we have including our channels for product across our channel and end user stock. Matt Cabral: That's helpful. And then I think it was last week that you guys announced the new head of your 3D printing business. Maybe just a broader update on how 3D has been ramping? Where you guys stand with the push and just maybe a bigger picture on when we should start to thinking about some more explicit disclosure, just to think about the impact of that business more going forward? Enrique Lores: Sure. Let me take that one. So first of all, this quarter, we started to see or we have seen the previous one solid growth on the 3D side. Perhaps grew more than 30%, which is a very solid number. And I think these showed some of the potential that this business has in the long-term. As we had announced before, we are complementing our strategy on 3D to also focus on some end-to-end applications where we think we're going to get even more value than just by selling printers or consumables and we were mentioning on our prepared remarks, the work that we are doing a molded fiber as an example. But we really think that more and more, we will have, we will be focusing on applications to capture value in this business and this is why we selected Didier Deltort to lead this business. He comes from the health and wellness industry. So, he comes from an industry that will be disrupted by 3D and we think this will be adding significant value to the definition of our strategy. And then in terms of when we will be more transparent on the 3D business, I think as I've said before, there are two major things. One is, we want the business to have higher scale and second, and probably most important, we need to have a better defined business model. And this is where this combination of selling printers or supplies or going after end-to-end applications is so important. So, while we will have a complete perspective of where this will be going longer-term is when we will be providing more visibility. Operator: Our final question today comes from Sidney Ho with Deutsche Bank. Jeff Rand: Hi, this is Jeff Rand on for Sidney. Can you give us an update on the competitive environment in your Personal Systems business and how this has changed through the pandemic and now a tight supply environment? Enrique Lores: Yes, I think that first of all, as we have discussed before, really the performance of this business now is more driven by supply than by the strength of the portfolio. Now having said that, we are really pleased with the progress we have made from a portfolio perspective. If you look at the innovation that we have introduced this quarter, we won significant awards across both consumer and commercial products. We have one of the broadest portfolios in the market, covering from low-end education products to high-end commercial products and we are in a very solid position to continue to grow share as we did this quarter that shows really the relevance of our portfolio. Jeff Rand: Great and just my follow-up, how should we think about your operating expenses trending in the near term as cost like business travel start to return? Enrique Lores: Well, I think if you look at the projections that we have for the second half, we think we will be going back to a similar level to where we were in Q1. Operator: This concludes our question-and-answer session. I'd like to turn the call back over to Enrique Lores for any closing remarks. Enrique Lores: Okay. So, let me close and thank you everybody for having joined us today. I think the strong results of the quarter demonstrate the relevance of HP in this hybrid world and how our technology is going to be helping customers to really perform in a very different environment. We are really pleased with the growth opportunities that we see both in our core markets, in attractive adjacencies and also in the new segments that we are creating. And we are going to continue to innovate across our technology to continue to create and drive differentiation. Thank you for your time today and looking forward to meet in person sometime soon. Thank you. Operator: The conference is 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.
