Coverage: HP’s earnings beat expectations, but stock falls on forecast

HP Inc.’s revenue and earnings declined but beat estimates in its most recent quarter, but the computer company showed signs of stabilizing its declining PC business, its largest revenue generator.

Don Clark of The Wall Street Journal had the news:

The Palo Alto, Calif.-based company said its personal-systems revenue was flat in the latest quarter after five quarters of declines, with unit PC sales up 4%. Revenue fell 14% in its printing business—which generates most of HP’s profits—reflecting greater use of email and file sharing rather than printing documents.

Shares fell 5.4% to $13.63 in after-hours trading on a profit outlook for the current quarter that was below analysts’ expectations.

HP pointed to signs of improvement in the printer business, and the company’s overall revenue and profit topped analyst expectations.

Dion Weisler, HP’s chief executive, said he was “incredibly pleased” with the progress made in the quarter.

Jonathan Vanian of Fortune focused on the weak forecast:

HP chief financial officer Cathie Lesjak said that one of the reasons HP is projecting a lower fourth quarter earnings despite PC sales somewhat stabilizing in its recent quarter was because the company is investing a lot of money in lifting sales of its higher-end printers. The goal is to sell more of these printers in geographies where people print more, which could lead to more sells of printer supplies or related services.

“We think that is the right investment to make,” said Lesjak. The investment increase will “put pressure” on HP’s current quarter, but it will “pay dividends in supply revenue in the future,” she promised.

And despite HP’s sales of PCs remaining flat its third quarter, Weisler was hesitant to say that the same trend would continue while cautioning that he agrees with major analyst firms that predict PC sales will be weaker in the second half of 2016 compared to the first half.

Sales of HP’s newly released Chromebooks also seemed to be on the rise, according to Weisler, although he did not cite any specific numbers. Companies like HP and Lenovo sell these lower-cost Chromebook laptops through partnerships with Google, which developed the Android-operating system that powers the devices.

Rex Crum of the San Jose Mercury News noted that the lower sales add to its post-split concerns:

It was the third quarterly report for HP as an independent company since Hewlett-Packard split into two in November 2015. Hewlett-Packard Enterprise, which announces its quarterly earnings Sept. 7, took over responsibility for the old HP’s servers, services, software and high-end computing businesses.

Along with the flat PC sales and a decline in printing revenue, HP reported a quarterly profit of 49 cents a share, on revenue of $11.9 billion, compared with earnings of 39 cents a share on $12.4 billion in sales a year ago. Excluding one-time items, HP’s earnings from continuing operations came in at 48 cents a share, which topped the 44-cents-a-share estimate from analysts surveyed by Thomson Reuters. HP also surpassed analysts’ forecasts of $11.5 billion in revenue for the quarter. But HP hinted that the business might remain challenged for the next few months.

Reaction to HP’s report was initially negative, as the company forecast earnings from continuing operations of 34 cents to 37 cents a share, which fell below analysts’ estimates of 41 cents a share.

“Printing (in the third quarter) was weak as expected,” said Shannon Cross, of Cross Research. “The company is guiding down for its fourth quarter, implying that any upside from this quarter may not be repeatable. Either PCs will slow down, or the (profit) margin in printers is going to be lower than expected.”