Computer giant HP Inc. (HPQ) managed to weather another sharp drop in PC sales and post better-than-expected quarterly results on Tuesday.
The company saw unit sales under pressure in its PC and print segments as businesses and consumers continued to tightly manage their finances post-pandemic. But with HP’s various cost-cutting efforts over the past year, both companies’ margins have remained intact.
“Our disciplined execution and strong innovation in a challenging macroeconomic environment allowed us to deliver non-GAAP EPS at the top of our second quarter guidance,” HP CEO Enrique Lores said in a statement.
Summary of earnings
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Net sales: -21.7% year-over-year to $12.9 billion vs. estimate of $13.03 billion
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Adjusted operating margin: 8.7% vs. 8.8% a year ago and estimates of 8.09%
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Adjusted diluted EPS: $0.80 vs $1.08 last year and estimates of $0.76
What else caught our attention
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Red flag: Inventories ended the quarter at $7.2 billion, up 5 days quarter over quarter to 65 days.
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Red flag: Sales of consumer PC and printer units fell 34% and 5%, respectively.
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Mixed: Fiscal Third Quarter Earnings Estimated Between $0.81 and $0.91; estimates were $0.85.
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GOOD: Operating margins remained stable in the Personal Systems segment despite lower sales.
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GOOD: Operating margins increased slightly in the printer segment despite lower sales.
What Wall Street said in regards to Pre-gains HP
Morgan Stanley (equal weight rating; $31 price target):
“We see a tactically positive setup in fiscal second quarter earnings given PC/Print’s rise in the quarter, but remain evenly weighted as the second half ramp is still not ‘risk free’ at our opinion,” analyst Erik Woodring wrote. “We believe that HPQ’s printing and personal systems business performed better than expected in the April quarter, with print units and average selling prices benefiting from further improvements in supply and channel filling, and PC units and prices slightly higher than low expectations.
Evercore ISI (online review; $33 price target):
“Investors will focus on PC market momentum (bottom in sight?), printing and management’s expectations of being above its long-term margin range for FY23, as well as free cash flow performance,” said analyst Amit Daryanani. “We don’t expect any updates to the FY23 guidance, but we are slightly more constructive heading into print given the positive intra-quarter data points.”
Daryanani added that he expects FY2023 sales to be down a small percentage of teens year-over-year (-11.2%): “Notably, the guide FY23 involves some kind of hockey stick ramp for EPS, which implies improvement in the second half of 2023 [but] very particular caution around the trajectory of Print operating margins, which could be under pressure. In the short term, we expect an online quarter for April, but remain cautious on the ramp back.”
In summary, the analyst continued: “While there are potential offsets to PC weakness this year – including strong print margins and stable free cash flow generation to enable strong buybacks, we remain cautious on the macro overhang preventing a steep second half of the year ramp and potential for a slowdown in average selling price growth.”
Brian Sozzi is the editor of Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn. Advice on the banking crisis? Email brian.sozzi@yahoofinance.com
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