HP (HPQ) Down 5.4% Since Earnings Report: Can It Continue?

It has been about a month since the last earnings report for HP Inc. HPQ. Shares have lost about 5.4% in in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

HP Reports Strong Q4 Earnings

HP has come up with another quarter of stellar performance. The company reported better-than-expected results in fourth-quarter fiscal 2017 and revenues increased for the fifth-consecutive quarter after an extended period of decline. Also, the Personal Systems and Print segments have improved for the third-straight quarter after 2010.

In fact, the company’s outstanding results for the last few quarters substantiate  that the spin-off from Hewlett Packard Enterprise Company (HPE - Research Report) coupled with restructuring initiatives is finally paying off for HP.

HP’s total revenues increased 11% year over year to $13.927 billion and outpaced the Zacks Consensus Estimate of $13.246 billion. The better-than-expected top-line performance was driven mainly by strength in the Personal System and Printing segments along with the successful launch of products.

The company’s bottom-line results were also impressive, wherein its non-GAAP earnings from continuing operations of 44 cents per share matched the Zacks Consensus Estimate. The figure came toward the higher-end of management’s earlier guidance range of 42-45 cents. On a year-over-year basis, non-GAAP earnings improved 22.2%.

Quarter in Detail

The Personal Systems segment generated revenues of $9.084 billion, up 13% year over year.  While commercial revenues increased 11%, consumer revenues were up 18%.

Printing revenues were up 7% year over year to $4.877 billion, primarily owing to a 10% increase in supplies revenues. HP’s total hardware unit sales grew 3% backed by Consumer hardware units increase of 3%. Commercial hardware units, however, remained flat on a year-over-year basis.

Region wise, revenues from Americas were up 10% year over year. While revenues from Europe, the Middle East and Africa (EMEA) grew 11%, the same from the Asia Pacific and Japan region increased 16% year over year, all in constant currency.

However, gross margin contracted 20 basis points (bps) on a year-over-year basis to 18.1%, primarily due to elevated commodity costs of Personal Systems. This was partially offset by better margin in the printing segment backed by improved productivity and higher supplies mix.

Non-GAAP operating expenses increased 6% year over year to $1.5 billion.

Non-GAAP operating margin from continuing operations remained flat year over year at 7%. HP’s non-GAAP net income from continuing operations came in at $749 million compared with $614 million reported a year ago.

Balance Sheet and Cash Flow

HP ended the fiscal fourth quarter with cash and cash equivalents of $6.997 billion compared with $6.967 billion in the previous quarter. The company had long-term debt of $6.747 billion compared with $6.744 billion last quarter.

The company generated cash flow of $680 million from operational activities during the quarter. HP repurchased shares worth $501 million and paid dividends worth $221 million, in the same time frame.

During fiscal 2017, operating cash flow came in at $3.677 billion while the company paid $894 million as cash dividend and bought back shares worth $1.412 billion.

Guidance

HP raised its earnings guidance range for fiscal 2018. The company now anticipates non-GAAP earnings per share from continuing operations in the band of $1.75-$1.85 (previously $1.74-$1.84). The Zacks Consensus Estimate is currently pegged at $1.79 per share.

For the fiscal first quarter, HP projects non-GAAP earnings from continuing operations in the range of 40-43 cents per share (mid-point: 41.5 cents). The Zacks Consensus Estimate is pegged at 42 cents.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last month as none of them issued any earnings estimate revisions.

HP Inc. Price and Consensus

 

HP Inc. Price and Consensus | HP Inc. Quote

VGM Scores

At this time, HP's stock has an average Growth Score of C, a grade with the same score on the momentum front. However, 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is more suitable for value investors than growth and momentum investors.

Outlook

Notably, the stock has a Zacks Rank #3 (Hold). We expect in-line returns from the stock in the next few months.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
HP Inc. (HPQ) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research