HP Inc (NYSE:HPQ) and its subsidiaries, late last week, announced fiscal 2020 third quarter net revenue of $14.3 billion, down 2.1% (down 0.2% in constant currency) from the prior-year period. While the company isn't entirely hitting all the notes, eLearning trends and the remote working dynamic driven by the pandemic health crisis are acting as much needed catalysts for HPQ in recent months. The printing segment, as expected, continues to be a drag, but HPQ's outlook for gradually improving results offers a glimmer of hope.
"Our strong Q3 results and solid beat for the quarter, in the face of unprecedented uncertainty, reflects the agility of our teams and the strength of our portfolio," said Enrique Lores, HP's President and CEO. "We're leveraging our leadership across consumer and commercial markets to capitalize on opportunities - from the essential role of the PC in an era of remote work and school to the rise of subscription-based business models to enable greater flexibility. Our diverse portfolio and disciplined execution are powering our performance and we're well positioned to drive continued value creation."
Third quarter GAAP diluted net EPS was $0.52, down from $0.78 in the prior-year period and above the previously provided outlook of $0.35 to $0.41. Third quarter non-GAAP diluted net EPS was $0.49, down from $0.58 in the prior-year period and above the previously provided outlook of $0.39 to $0.45. Third quarter non-GAAP net earnings and non-GAAP diluted net EPS exclude after-tax adjustments of $32 million, or $0.03 per diluted share, related to restructuring and other charges, acquisition-related charges (credits), amortization of intangible assets, non-operating retirement-related (credits)/charges, debt extinguishment costs and tax adjustments.
HP Inc (NYSE:HPQ) trumpets itself as a company that, together with its subsidiaries, provides personal computing and other access devices, imaging and printing products, and related technologies, solutions, and services in the United States and internationally. The company operates through three segments: Personal Systems, Printing, and Corporate Investments.
The Personal Systems segment offers commercial and consumer desktop and notebook personal computers, workstations, thin clients, commercial mobility devices, retail point-of-sale systems, displays and other related accessories, software, support, and services. The Printing segment provides consumer and commercial printer hardware, supplies, solutions, and services, as well as scanning devices. The Corporate Investments segment includes HP Labs and business incubation projects.
It serves individual consumers, small- and medium-sized businesses, and large enterprises, including customers in the government, health, and education sectors.
The context for this announcement is a bit of a bid, with shares acting well over the past five days, up about 5% in that timeframe.
Our HPQ Earnings Summary:
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Reports Q3 (Jul) earnings of $0.49 per share, excluding non-recurring items, $0.06 better than the S&P Capital IQ Consensus of $0.43;
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Revenues fell 2.1% year/year to $14.29 bln vs the $13.29 bln S&P Capital IQ Consensus.
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Third quarter GAAP diluted net earnings per share ("EPS") of $0.52, above the previously provided outlook of $0.35 to $0.41 per share
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Third quarter non-GAAP diluted net EPS of $0.49, above the previously provided outlook of $0.39 to $0.45 per share
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Third quarter net revenue of $14.3 billion, down 2.1% from the prior-year period
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Third quarter net cash from operating activities of $1.7 billion, free cash flow of $1.6 billion
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Third quarter returned $1.2 billion to shareholders in the form of share repurchases and dividends
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Co issues upside guidance for Q4 (Oct), sees EPS of $0.50-0.54, excluding non-recurring items, vs. $0.50 S&P Capital IQ Consensus.
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Revenue in the Personal Systems (PS) segment, which includes laptops, notebooks, and PCs, increased by 7%, fueled by a 42% surge in sales to the consumer market. The commercial market was predictably weak due to the work-from-home shift; category revenue sank by 6%.
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Rival Dell (DELL) also posted impressive, upside Q2 results. However, DELL lagged HPQ this quarter, generating 18% growth in the consumer market while its PC sales to businesses fell by 11%.
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One caveat is that HPQ's manufacturing disruptions pushed some sales from Q2 into Q3.
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Hitting on another virus-related trend, HPQ expanded its lineup of gaming PCs, Omen and Pavilion. With people spending more time at home, gaming is consuming an increasing portion of leisure time.
Our HPQ Research and Conference Call Notes:
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Looking ahead, HPQ expects to generate Q4 EPS of $0.50-0.54 vs. the $0.50 consensus estimate.
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The company expects the same tailwinds that propelled the consumer segment in Q3 to continue through at least the end of the year.
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While the PS segment is benefitting from the changing environment, the opposite is true for HPQ's printing segment. Sales for printers are dwindling in corporate settings due to remote working. Likewise, printing supplies and ink sales have also plunged.
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Printing revenue decreased by 20% yr/yr as commercial hardware units dove by 32%.
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A silver lining is that consumer hardware units ticked higher by 3% due to an increase in home printing.
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The supply chain disruptions that impacted the printing business last quarter were corrected, leading to a sequential improvement in unit sales.
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HPQ's strategy to revive its struggling ink business centers on building up its "Instant Ink" subscription base. Encouragingly, subscribers grew by double digits this quarter, putting HPQ on track to surpass 8 mln subscribers by the end of the fiscal year.
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It also appears that the printing business may have bottomed. HPQ is calling for a gradual increase in demand as businesses reopen.
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Cowen raises their HPQ tgt to $20 from $18. Analyst Krish Sankar added, "HP reported upside results and outlook on strong consumer & WFH PC demand that could last into year end. Just as important, it appears Printing has bottomed with room for margins to improve as supplies subscriptions approach 8M. Confidence in returning 100% of FCF with a minimum of $1B/quarter in repurchases should continue to support shares. Raising PT to $20."
