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HPQ Q3 Earnings Miss: Will Weak FY24 View Drag Down Shares?

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HP Inc.’s (HPQ - Free Report) third-quarter fiscal 2024 non-GAAP earnings of 83 cents per share missed the Zacks Consensus Estimate of 86 cents. The bottom line declined 3.5% year over year and came within the company’s guidance of 78-92 cents. The decline in the bottom line was due to competitive pricing and higher commodity costs.

HPQ’s net revenues of $13.5 billion surpassed the Zacks Consensus Estimate of $13.35 billion. The figure improved 2.4% from the prior-year quarter’s level of $13.2 billion. The better-than-expected top-line performance reflected benefits from the recovery in the commercial PC segment.

Considering lower-than-expected second-quarter bottom-line performance, HP lowered its full-year guidance for earnings. HPQ stock has gained 15.5%, underperforming the Zacks Computer - Micro Computers industry’s growth of 18.8% in the year-to-date period. Given the decline in the bottom line and the downward revision in full-year earnings guidance, we expect HPQ’s share price to be under pressure in the near term.

HP Inc. Price, Consensus and EPS Surprise

HP Inc. Price, Consensus and EPS Surprise

HP Inc. price-consensus-eps-surprise-chart | HP Inc. Quote

Third-Quarter Details of HPQ

Personal Systems (PS) revenues (69.3% of net revenues) came in at $9.36 billion, which improved 4.9% from the year-ago quarter’s figure (5.3% up at cc). The growth in this segment was mainly due to a favourable mix of products in the commercial PS segment and a robust strategy.

HP’s total PC units sold were up 1% on a year-over-year basis, mainly driven by a 6% increase in Commercial PS shipments, offset by a decline of 6% in Consumer PS shipments. Revenues from the Commercial PS segment increased 8% year over year, while Consumer PS segment sales declined 1%.

The printing business’ revenues (30.6% of net revenues) decreased 2.8% year over year (down 1.9% at cc) to $4.14 billion. The decrease in the Print business was due to the competitive nature of the market, where HP’s Japanese competitors got a pricing advantage due to a weaker Yen, slow market recovery and lower-than-expected results in China.

Consumer Printing net revenues improved 2%, while Commercial Printing net revenues declined 5%. Supplies net revenues were down 2% (down 1% in constant currency) year over year. Total hardware units declined 2% overall.
On a reported basis, region-wise, the Americas grew 3.5% and the EMEA region witnessed growth of 3.2% in revenues. The Asia Pacific and Japan revenues fell 0.6% year over year. The decline in Asia Pacific and Japan region was due to softer demand in China.

Operating Results of HP

Segment-wise, PS’ non-GAAP operating margin contracted 20 basis points (bps) to 6.4%. The decline was due to competitive pricing and rising commodity costs.

The Printing division’s non-GAAP operating margin contracted 130 bps to 17.3%.

HP’s overall non-GAAP operating margin from continuing operations of 8.1% contracted 70 bps year over year.

HPQ’s Balance Sheet and Cash Flow

The company ended the fiscal third quarter with cash, cash equivalents and restricted cash of $3.73 billion, up from $2.52 billion at the end of the previous quarter.

During the quarter, HPQ generated $1.42 billion worth of cash from operational activities and $1.3 billion in free cash flow. HP returned $870 million to its shareholders in the form of share repurchases and cash dividends.

HP’s Q4 and FY24 Guidance

For the fourth quarter of fiscal 2024, the company estimates non-GAAP EPS between 89 cents and 99 cents (midpoint 94 cents). The Zacks Consensus Estimate is pegged at 95 cents.

For fiscal 2024, the company expects its non-GAAP EPS between $3.35 and $3.45 (midpoint $3.40), down from the previous guidance of $3.30-$3.60 (mid-point $3.45). The Zacks Consensus Estimate is pegged at $3.45 per share. 
HPQ expects its free cash flow in the range of $3.1-$3.6 billion for fiscal 2024.

Zacks Rank & Stocks to Consider

HPQ currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the broader technology sector are Aspen Technology (AZPN - Free Report) , Celestica (CLS - Free Report) and Arista Networks (ANET - Free Report) , each sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

The consensus mark for Aspen’s 2025 earnings has been revised upward by 70 cents to $7.43 per share over the past 30 days, indicating a 12.8% year-over-year increase. It has a long-term earnings growth expectation of 13.1%. The stock has lost 2.7% year to date.

The Zacks Consensus Estimate for Celestica’s 2024 earnings has been revised upward by 33 cents to $3.65 per share in the past 60 days suggesting year-over-year growth of 50.2%. Shares of Celestica have surged 72% year to date.

The Zacks Consensus Estimate for Arista’s 2024 earnings has been revised upward by 30 cents to $8.24 per share in the past 30 days, indicating an increase of 18.73% on a year-over-year basis. Shares of ANET have jumped 46.7% year to date. It has a long-term earnings growth expectation of 17.2%.


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