HP (HPQ) Q1 Earnings Top, Personal Systems Revenues Rise

HP (NYSE:HPQ) delivered first-quarter fiscal 2020 non-GAAP earnings from continuing operations of 65 cents per share, beating the Zacks Consensus Estimate by 3.45% and also the year-ago quarterly figure by 20.4%.

HP’s net revenues of $14.618 billion surpassed the Zacks Consensus Estimate of $14.613 billion but declined 0.6% year over year. However, in constant currency (cc), revenues rose 1%.

HP’s results in the fiscal first quarter benefited from strong growth in Personal Systems revenues. However, soft consumer market and weakness in the Printing business remain concerns.

Quarter in Detail

Personal Systems revenues (68% of net revenues) were $9.89 billion, up 2.4% year over year (3.8% in CC). Further, commercial revenues increased 7% but consumer revenues were down 7%.

HP’s total units sold rose 4% from the year-ago quarter. Notebooks registered a 2% climb while desktop units improved 7% year over year. Notebooks (41%), Desktop (20%) and Workstation (7%) revenues were up 1%, 2% and 6%, respectively.

Printing business revenues (32% of net revenues) were down 6.6% year over year (down 5.8% in CC) to $4.72 billion.

HP’s total hardware units sold declined 10%. Moreover, Consumer Hardware unit fell 10% and Commercial Hardware unit dipped 12% on a year-over-year basis.

Commercial Hardware revenues (7%) slid 1% year over year. Further, revenues from Consumer Hardware (4%) and Supplies (21%) decreased 13% and 7%, respectively.

Region wise, at cc, revenues from Asia-Pacific plus Japan region (23%) grew 4%. Meanwhile, Europe, the Middle East and Africa (EMEA) revenues (36%) were flat. Revenues from Americas (41% of net revenues) declined 1%.

HP Inc. Revenue (TTM)

HP Inc. revenue-ttm | HP Inc. Quote

Operating Results

Segment wise, Personal Systems operating margin expanded 250 basis points (bps) to 6.7%, driven by cost control. However, printing operating margin contracted 20 bps to 16% due to lower supplies revenues.

Meanwhile, non-GAAP operating margin from continuing operations of 8.1% expanded 120 bps year over year.

Balance Sheet and Cash Flow

HP ended the fiscal first quarter with cash and cash equivalents of $4.21 billion compared with $4.5 billion sequentially.

The company generated cash flow of $1.3 billion from operational activities and $1.1 billion free cash flow during the quarter under review.

HP returned nearly $900 million to its shareholders in the form of stock repurchases ($700 million) and cash dividends ($300 million).

Guidance

HP expects coronavirus to adversely impact its top line, bottom line and free cash flow in the fiscal second quarter.

For the second quarter of fiscal 2020, HP predicts non-GAAP earnings between 49 cents and 53 cents.

HP expects the competitive pricing environment and Intel’s CPU shortage to remain concerns for its Personal Systems business.

For fiscal 2020, HP now expects non-GAAP earnings between $2.33 and $2.43 per share, upped from the previous guidance of $2.24-$2.32.

HP expects to return approximately $16 billion to shareholders over the next three years, with minimum of $8 billion of shares repurchased in the 12 months. In order to support this, the company increased the total share repurchase authorization to $15 billion from $5 billion announced in October 2019.

Zacks Rank & Stocks to Consider

HP currently carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the broader technology sector are Cirrus Logic (NASDAQ:CRUS) , SYNNEX (NYSE:SNX) and Silicon Motion Technology Corporation (NASDAQ:SIMO) , all sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Cirrus, SYNNEX and Silicon Motion is currently pegged at 15.3%, 10.37% and 7%, respectively.

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