HP Inc (HPQ) Stock Volatile In After-Hours Trading: Here's Why

Shares of HP Inc. (NYSE:HPQ) became highly volatile in after-hours trading session yesterday due to two major announcements. First, the company announced a raised outlook for third-quarter fiscal 2016 earnings to reflect the recent spin-off of its Marketing Optimization assets to Open Text Corporation (NASDAQ:OTEX) .

The company now expects non-GAAP earnings in the range of 43 cents to 46 cents per share, up from its previous expectations of 37–40 cents. On a GAAP basis, earnings are now expected to be 40 cents to 43 cents per share, compared to the prior guidance of 34–37 cents.

However, the company kept its fiscal 2016 earnings outlook unchanged. We remind investors that the previous guidance was provided only a month ago, along with it the company’s second-quarter fiscal 2016 earnings release.

Investors reacted positively to the news, pushing the world’s leading PC manufacturer’s shares up over 5% during after-hours trading, as per the NASDAQ after-hours trading data.

However, soon after the announcement of a raised guidance, the company disclosed plans of reducing global inventories of ink and toner with distributors. According to the company’s Chief Financial Officer (CFO) Catherine Lesjak, this decision will result a revenue loss of about $450 million over two quarters.

This did not go down well with investors, which was reflected by an approximate 3% fall in the company’s shares, which offset the gain from the previous announcement.

HP INC Price

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Since its split from Hewlett-Packard Company last November, HP has been striving to stabilize declining sales and eroding profits through a series of restructuring initiatives. The company has been witnessing a secular decline in demand for PC and printers due to the ongoing shift toward tablets and smartphones – a space where it is yet to gain foothold.

Therefore, HP is now focusing on product innovations to give a boost to its revenues and is cutting jobs as part of its restructuring plan to lower costs. Post the split from the parent company, HP announced its decision to accelerate the restructuring plan by reducing its total headcount by 3,000 by the end of fiscal 2016 and by expediting streamlining processes.

Its streamlining efforts include the spin-off of its non-core assets. In sync with this strategy, the company recently divested a portfolio of assets, comprising content management software tools and Customer Communications Management, to Open Text in order to better focus on its PC and printing businesses.

Although the company’s ongoing restructuring initiatives look promising, the recent decision to reduce global printer inventories at its distributors makes us a little cautious. We believe that this decision could lead to the company losing its market share in the space, as low availability of HP’s products will surely make customers opt for its rival companies’ products.

Currently, HP carries Zacks Rank #3 (Hold). A couple of better-ranked stocks in the broader technology sector are Amkor Technology Inc. (NASDAQ:AMKR) and Facebook Inc. (NASDAQ:FB) , both sporting a Zacks Rank #1 (Strong Buy).