HP (HPQ) Shares Down 9.5% Since Last Earnings Report: Is A Rebound Possible?

It’s been about a month since HP’s (HPQ) last earnings report, and the stock is down about 9.5% in that time, underperforming the S&P 500.

Will the recent negative trend continue leading up to the next earnings release, or is HP ready for a breakthrough? Before we dive into how investors and analysts have reacted lately, let’s take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

HP’s second-quarter earnings and revenue beat estimates

HP Inc. reported second-quarter fiscal 2024 non-GAAP earnings of 82 cents per share, which exceeded the consensus of 81 cents and was within management’s previously forecast range of 76 to 86 cents. Additionally, net income improved 4% year over year, primarily due to maximizing operating efficiencies and managing costs.

HPQ’s net revenues of $12.8 billion also surpassed the Zacks Consensus Estimate of $12.5 billion. However, the top line was down 0.8% year-over-year. In constant currency (cc), revenues declined 1.2% in the second quarter. The better-than-expected top-line performance reflected benefits from the recovery in the commercial computing segment.

Quarter details

Personal Systems (PS) revenues (65.8% of net revenues) were $8.4 billion, an improvement of 3% compared to the same quarter last year (up 2% cc). The growth in this segment was mainly due to market stabilization and solid business execution.

HP’s total PC units sold increased 7% year-over-year, driven by a 12% increase in commercial PS shipments, partially offset by a 1% decline in consumer PS shipments. Commercial PS revenue increased 6% year-over-year, while consumer PS sales decreased 3%.

Printing revenue (34.1% of net revenue) declined 8% year over year (down 7% in cc) to $4.4 billion. The decline in the printing business was due to the competitive nature of the market and an overall decline in both the company’s hardware and consumables.

Consumer Printing and Commercial Printing net revenues declined 16% and 12%, respectively. Net consumables revenue decreased 5% (4% in constant currency) year over year. Total equipment units decreased by 17%.

According to reports, the Americas regions grew by 3.1%, while the EMEA region saw a marginal revenue decline of 0.8%. Revenues in Asia Pacific and Japan declined 7.7% year over year. The decline in Asia-Pacific and Japan was due to weaker demand in China.

Operating results

On a segment basis, PS’s non-GAAP operating margin increased 70 basis points (bps) to 6%. The increase was due to lower commodity and logistics costs, which led to cost savings. The growth was partially offset by investments and competitive prices.

History continues

The Print division’s non-GAAP operating margin remained unchanged at 19%.

HP’s total non-GAAP operating margin from continuing operations was 8.8%, up 20 basis points year-over-year.

Balance sheet and cash flow

The company ended the fiscal second quarter with cash, cash equivalents and restricted cash of $2.52 billion, compared to $2.42 billion at the end of the prior quarter.

During the quarter, HPQ generated $581 million in cash from operations and $481 million in free cash flow. HP returned $369 million to shareholders in the form of share repurchases and cash dividends.

Conductivity

For the third quarter of fiscal 2024, the company estimates non-GAAP EPS will be in the range of 78 cents to 92 cents (average 85 cents).

For fiscal 2024, the company continues to forecast non-GAAP EPS of $3.30 to $3.60 ($3.45 midpoint). HPQ expects fiscal 2024 free cash flow to be between $3.1 billion and $3.6 billion.

How have estimates changed since then?

The revision of estimates over the past two months has been unchanged.

VGM Results

HP currently has an average Growth Score of C, but its Momentum Score is slightly better at B. Similarly, the stock has an A rating on the Value side, placing it in the top quintile for this investment strategy.

Overall, the stock has a composite VGM Score of A. If you’re not focused on a single strategy, this rating should interest you.

Perspectives

HP carries a Zacks Rank #3 (Hold). We expect a linear rate of return on the stock over the next few months.

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