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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.
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.
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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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-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%.