Post Earnings Coverage as HP Tops Market Expectation

LONDON, UK / ACCESSWIRE / August 29, 2016 / Active Wall St. announces its post-earnings coverage on HP Inc. (NYSE: HPQ). The company released its third quarter fiscal 2016 earnings results on August 24th, 2016. The personal computer maker’s overall revenue and income topped Wall Street’s expectations driven by strong performance by Personal System. Register with us now for your free membership at: http://www.activewallst.com/register/.

Today, AWS is promoting its earnings coverage on HPQ; touching on and Hewlett-Packard Enterprise Co. (NYSE: HPE). Get our free coverage by signing up to:

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Earnings Review

For the three months ended July 31, 2016, HP’s earnings declined 8% to $783 million, or $0.45 per share, from earnings of $854 million, or $0.47 per share, in the year ago period. On an adjusted basis, HP reported adjusted net income of $826 million, or $0.48per share, compared to $646 million, or $0.35 per share reported a year, topping analysts’ forecast of $0.45 per share. In June 2016, the company has forecasted adjusted earnings between $0.43 and $0.46 per share. HP’s total revenue dropped 3.8% on y-o-y basis to $11.89 billion primarily due to a decline at the Printer segment, but still beat estimates of $11.5 billion.

“In Q3, we delivered on our financial commitments and continued to make solid progress in executing against our core, growth and future strategic framework,” said chief executive Dion Weisler.

The Printers and PC Story

In November 2015, Hewlett-Packard Co. split into two standalone companies, HP Inc. and Hewlett-Packard Enterprise Co. Post-split, its PC and printer business has been operating as HP Inc., while Hewlett-Packard specializes in commercial tech products.

The Palo Alto, California headquartered company said its personal-systems revenue grew marginally after five quarters of decline. The segment generated revenues of $7.51 billion, compared with $7.50 billion reported in Q3 FY15. The company noted that Commercial revenues fell 3%, while Consumer revenues climbed 8% in its personal- systems segment. HP reported a 4% rise in total shipment, attributed to a 12% increase in its Notebook unit shipment, which was partially offset by a 6% drop in Desktops unit shipment.

HP, the second largest PC maker in the world behind Lenovo, has long been impacted by declining sales in the PC business due to consumer preference for smartphones. However, July 2016 report from International Data Corp. estimated that HP’s quarterly PC shipments rose 5.1% over a year ago, indicating that HP has been able to stem the fall even as the overall PC market tumbled by 4.5%. HP has targeted faster-growing parts of the market that fetch premium margins, such as gaming PCs and premium notebook models.

Its printing business did not see the same success story as revenue there slumped 14% to $4.43 billion. The company’s printing business generates most of its profits and the revenue decline was primarily due to an 18% plunge in toner and ink supplies revenues while printing hardware unit sales slid 10%. HP’s total hardware unit sales declined 10%, with Commercial hardware units down 2% and Consumer hardware units down 14%. Another factor impacting the performance of the printer unit can be attributed to HP’s decision to reduce inventory at its dealers and distributors.

In June 2016, the company announced a strategy shift aimed at reducing distributor inventories and moving away from using periodic promotions to drive demand. The company forecasted that printing supplies revenue would go down by about $225 million in each of its third and fourth quarters because of the reduction of inventory in its distribution channels.

Non-GAAP gross margin was down 50 basis points (bps) to 18.3% on y-o-y basis primarily due to lower revenues.

Balance Sheet and Cash Flow

As of July 31, 2016, HP had cash and cash equivalents worth $5.64 billion compared to $7.58 billion as of October 31, 2015. The company had long-term debt of $6.760 billion compared to $6.7 8 billion as of October 31, 2015.

HP also utilized $0.1 billion of cash during the quarter to repurchase approximately 4.5 million shares of common stock in the open market.

Outlook

HP is projecting adjusted earnings between $0.34 per share and $0.37 per share for Q4 FY16. Analysts are forecasting earnings of $0.41 per share. The company did not provide a revenue projection. For FY16, HP is projecting earnings between $1.59 per share and $1.62 per share. It had previously projected a range of $1.59 per share to $1.65 per share.

Stock Performance

On August 26, 2016, HP’s shares closed the trading session at $14.39, up 0.14%. A total volume of 15.57 million shares traded during the day, which was higher than its 3 months average volume of 13.12 million shares. The company’s stock price has gained 3.23% in the past one month and has advanced 24.04% since the beginning of the year.

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