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Why Is HP (HPQ) Up 5.2% Since Last Earnings Report?
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A month has gone by since the last earnings report for HP (HPQ - Free Report) . Shares have added about 5.2% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is HP due for a pullback? Before we dive into how investors and analysts have reacted as of late, 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 Q4 Earnings and Revenues Beat Estimates
HP reported a solid bottom line for the fourth quarter, wherein its non-GAAP earnings jumped 52% year over year to 94 cents per share from the 62 cents reported in the year-ago quarter. Also, quarterly earnings surpassed the Zacks Consensus Estimate of 88 cents per share and management’s guided range of 84-90 cents.
The significant year-over-year increase in earnings reflects benefits from higher revenues and favorable pricing, product mix currency exchange rates, partially offset by higher commodity costs and increased investments in innovation and the go-to-market strategy.
HP’s net revenues increased 9.3% year over year to $16.7 billion and beat the Zacks Consensus Estimate of $15.4 billion. In constant currency (cc), revenues grew 6.9%.
The robust top-line performance reflects strong demand for HP’s personal systems and printers. However, the revenue growth was negatively impacted by the continued component supply-chain constraints. Also, COVID-related factory shutdowns across several parts of the world, along with the transportation disruptions and congested ports have been negatively impacting HP’s overall sales.
Quarter in Detail
Personal Systems revenues (71% of net revenues) came in at $11.8 billion, 13% higher than the year-ago quarter (up 10% in cc). The year-over-year growth reflected strong demand for PCs and the positive impact of the big shift toward mainstream and premium commercials. Further, consumer revenues decreased 3%, while commercial revenues increased 25%.
HP’s total PC units sold were down 9% on a year-over-year basis due to the expected supply chain challenges and lower chrome mix. Notebooks registered a year-over-year decline of 12%, while desktop units dropped 2%. Notebook revenues increased 13% year over year to $8.3 billion, while desktop sales grew 11% to $2.5 billion. Workstation sales jumped 39% to $492 million.
HP noted that demand for its products under the Personal Systems segment remained strong during the reported quarter with the backlog increasing again on a quarter-over-quarter basis. However, continued supply-chain constraints hurt this segment’s overall sales growth.
HP is witnessing a strong rebound in its Printing business, which was affected by the office closures during the pandemic. However, due to the continued manufacturing and component supply constraints, the company failed to meet demand.
Printing business revenues (29% of net revenues) increased 1% year over year (flat in cc) to $4.9 billion. HP’s total hardware units sold decreased 26%. Consumer Hardware units declined 28%, while revenues plunged 6%. Further, Commercial Hardware units and revenues decreased 12% and 19%, respectively. Supplies revenues declined 2%.
Region wise, at cc, revenues from the EMEA (36% of 4Q21 revenues) and APJ (24%) climbed 15% and 18%, respectively. However, sales in America (40%) fell 4%.
Operating Results
Segment wise, Personal Systems’ operating margin expanded 140 basis points (bps) to 6.5%, primarily driven by favorable pricing, product mix and currency exchange rates, partially offset by higher commodity costs and increased investments in the go-to-market strategy and innovations.
The printing division’s operating margin expanded 200 bps to 17% on favorable pricing, product mix and currency exchange rates.
HP’s overall non-GAAP operating margin from the continuing operations of 9.5% advanced 150 bps year over year.
Fiscal 2021 Highlights
HP’s fiscal 2021 net revenue increased 12.1% year over year to $63.5 billion and surpassed the Zacks Consensus Estimate of $62.16 billion. The company’s fiscal 2021 non-GAAP earnings surged 66% year over year to $3.79 per share. Moreover, quarterly earnings surpassed the Zacks Consensus Estimate of $3.74 per share and management’s guided range of 3.56-$3.62.
Balance Sheet and Cash Flow
HP ended the fiscal fourth quarter with cash and cash equivalents of $4.3 billion, up from $3.4 billion at the end of the third quarter of fiscal 2021.
During the reported quarter, the company generated operating cash flows of $2.8 billion and a free cash flow of $0.9 billion. HP returned $2 billion to its shareholders in the form of stock repurchases ($1.8 billion) and cash dividends ($219 million) during the fiscal fourth quarter. Also, HP returned 210% of its free cash flows.
During fiscal 2021, the company generated operating and free cash flows of $6.4 billion and $4.2 billion, respectively. It bought back $6.2 billion worth of its common stocks and paid $938 million in cash dividends. Also, HP returned 170% of its free cash flows.
First-Quarter and Fiscal 2022 Guidance
For fiscal 2022, management expects non-GAAP earnings in the range of $4.07-$4.27 per share. Also, the company estimates to generate at least $4.5 billion of free cash flow during the fiscal year. On the earnings conference call, HP said that it expects to buy back at least $4 billion worth of its common stock during fiscal 2022.
For the first quarter of fiscal 2022, HP estimates non-GAAP earnings per share between 99 cents and $1.05. For the printing segment, HP projects robust demand for consumer printers and continued improvement in the commercial segment as offices reopen. HP anticipates solid demand for personal systems during the current quarter.
HP expects that the industry-wide component supply constraints might affect its ability to meet demand. Moreover, the ongoing pandemic is expected to cause some manufacturing, port and logistics disruptions at least through the first half of 2022. These factors are expected to curb the company’s revenue growth in the ongoing quarter.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 6.92% due to these changes.
VGM Scores
Currently, HP has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, HP has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Why Is HP (HPQ) Up 5.2% Since Last Earnings Report?
A month has gone by since the last earnings report for HP (HPQ - Free Report) . Shares have added about 5.2% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is HP due for a pullback? Before we dive into how investors and analysts have reacted as of late, 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 Q4 Earnings and Revenues Beat Estimates
HP reported a solid bottom line for the fourth quarter, wherein its non-GAAP earnings jumped 52% year over year to 94 cents per share from the 62 cents reported in the year-ago quarter. Also, quarterly earnings surpassed the Zacks Consensus Estimate of 88 cents per share and management’s guided range of 84-90 cents.
The significant year-over-year increase in earnings reflects benefits from higher revenues and favorable pricing, product mix currency exchange rates, partially offset by higher commodity costs and increased investments in innovation and the go-to-market strategy.
HP’s net revenues increased 9.3% year over year to $16.7 billion and beat the Zacks Consensus Estimate of $15.4 billion. In constant currency (cc), revenues grew 6.9%.
The robust top-line performance reflects strong demand for HP’s personal systems and printers. However, the revenue growth was negatively impacted by the continued component supply-chain constraints. Also, COVID-related factory shutdowns across several parts of the world, along with the transportation disruptions and congested ports have been negatively impacting HP’s overall sales.
Quarter in Detail
Personal Systems revenues (71% of net revenues) came in at $11.8 billion, 13% higher than the year-ago quarter (up 10% in cc). The year-over-year growth reflected strong demand for PCs and the positive impact of the big shift toward mainstream and premium commercials. Further, consumer revenues decreased 3%, while commercial revenues increased 25%.
HP’s total PC units sold were down 9% on a year-over-year basis due to the expected supply chain challenges and lower chrome mix. Notebooks registered a year-over-year decline of 12%, while desktop units dropped 2%. Notebook revenues increased 13% year over year to $8.3 billion, while desktop sales grew 11% to $2.5 billion. Workstation sales jumped 39% to $492 million.
HP noted that demand for its products under the Personal Systems segment remained strong during the reported quarter with the backlog increasing again on a quarter-over-quarter basis. However, continued supply-chain constraints hurt this segment’s overall sales growth.
HP is witnessing a strong rebound in its Printing business, which was affected by the office closures during the pandemic. However, due to the continued manufacturing and component supply constraints, the company failed to meet demand.
Printing business revenues (29% of net revenues) increased 1% year over year (flat in cc) to $4.9 billion. HP’s total hardware units sold decreased 26%. Consumer Hardware units declined 28%, while revenues plunged 6%. Further, Commercial Hardware units and revenues decreased 12% and 19%, respectively. Supplies revenues declined 2%.
Region wise, at cc, revenues from the EMEA (36% of 4Q21 revenues) and APJ (24%) climbed 15% and 18%, respectively. However, sales in America (40%) fell 4%.
Operating Results
Segment wise, Personal Systems’ operating margin expanded 140 basis points (bps) to 6.5%, primarily driven by favorable pricing, product mix and currency exchange rates, partially offset by higher commodity costs and increased investments in the go-to-market strategy and innovations.
The printing division’s operating margin expanded 200 bps to 17% on favorable pricing, product mix and currency exchange rates.
HP’s overall non-GAAP operating margin from the continuing operations of 9.5% advanced 150 bps year over year.
Fiscal 2021 Highlights
HP’s fiscal 2021 net revenue increased 12.1% year over year to $63.5 billion and surpassed the Zacks Consensus Estimate of $62.16 billion. The company’s fiscal 2021 non-GAAP earnings surged 66% year over year to $3.79 per share. Moreover, quarterly earnings surpassed the Zacks Consensus Estimate of $3.74 per share and management’s guided range of 3.56-$3.62.
Balance Sheet and Cash Flow
HP ended the fiscal fourth quarter with cash and cash equivalents of $4.3 billion, up from $3.4 billion at the end of the third quarter of fiscal 2021.
During the reported quarter, the company generated operating cash flows of $2.8 billion and a free cash flow of $0.9 billion. HP returned $2 billion to its shareholders in the form of stock repurchases ($1.8 billion) and cash dividends ($219 million) during the fiscal fourth quarter. Also, HP returned 210% of its free cash flows.
During fiscal 2021, the company generated operating and free cash flows of $6.4 billion and $4.2 billion, respectively. It bought back $6.2 billion worth of its common stocks and paid $938 million in cash dividends. Also, HP returned 170% of its free cash flows.
First-Quarter and Fiscal 2022 Guidance
For fiscal 2022, management expects non-GAAP earnings in the range of $4.07-$4.27 per share. Also, the company estimates to generate at least $4.5 billion of free cash flow during the fiscal year. On the earnings conference call, HP said that it expects to buy back at least $4 billion worth of its common stock during fiscal 2022.
For the first quarter of fiscal 2022, HP estimates non-GAAP earnings per share between 99 cents and $1.05. For the printing segment, HP projects robust demand for consumer printers and continued improvement in the commercial segment as offices reopen. HP anticipates solid demand for personal systems during the current quarter.
HP expects that the industry-wide component supply constraints might affect its ability to meet demand. Moreover, the ongoing pandemic is expected to cause some manufacturing, port and logistics disruptions at least through the first half of 2022. These factors are expected to curb the company’s revenue growth in the ongoing quarter.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 6.92% due to these changes.
VGM Scores
Currently, HP has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, HP has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.