HP (HPQ) Q4 Earnings and Revenues Top Estimates, Rise Y/Y

HP HPQ delivered fourth-quarter fiscal 2019 non-GAAP earnings from continuing operations of 60 cents per share, beating the Zacks Consensus Estimate by 3.45% and also the year-ago quarterly figure by 11%.

Also, HP’s net revenues of $15.4 billion surpassed the Zacks Consensus Estimate of $15.3 billion and inched up 0.3% year over year as well. Moreover, in constant currency (cc), revenues rose 2%.

HP’s results in the fiscal third quarter benefited from strong growth in Personal Systems revenues. Broad-based growth across all products and geographies is helping the company outperform the PC market. However, weakness in the Printing business is a lingering challenge.

Quarter in Detail

Personal Systems (68% of net revenues) revenues were $10.4 billion, up 4% year over year. Further, commercial revenues increased 8% but consumer revenues were down 4%.

HP’s total units sold rose 8% from the year-ago quarter. Also, Notebooks registered a 9% climb while desktop units improved 5% year over year.

Notebooks (60% of Personal Systems revenues), Desktop (30%) and workstation (6.2%) revenues were up 2%, 5% and 12%, respectively.

Management noted that the company witnessed double-digit revenue growth in retail solutions business and gaming as well as services orders.

Printing business revenues (33.6% of net revenues) were down 6% year over year to $4.98 billion.

HP’s total hardware units sold declined 9%. Moreover, Consumer Hardware unit fell 10% and Commercial Hardware unit dipped 1% on a year-over-year basis.

Commercial Hardware revenues slid 2% year over year. Further, revenues from Consumer Hardware and Supplies decreased 10% and 7%, respectively. Macroeconomic weakness, particularly in Europe, the Middle East and Africa (EMEA), is denting Supplies revenues.

Region wise, at cc, revenues from Americas (44% of net revenues) and Asia-Pacific plus Japan regions (23%) improved 1% and 7%, respectively. Meanwhile, EMEA (33%) revenues were flat.

HP Inc. Price, Consensus and EPS Surprise

HP Inc. Price, Consensus and EPS Surprise

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

Operating Results

In the fiscal fourth quarter, gross margin was 19%, up 140 basis points (bps) on a year-over-year basis.

Non-GAAP operating expenses rose 11% year over year to $1.8 billion due to investments in innovation as well as digital infrastructure.

Segment wise, Personal Systems operating margin expanded 160 bps to 5.3%, driven by cost control. However, printing operating margin contracted 40 bps to 15.6% due to lower supplies revenues.

Meanwhile, non-GAAP operating margin from continuing operations of 8.5% expanded 70 bps year over year.

Balance Sheet and Cash Flow

HP ended the fiscal fourth quarter with cash and cash equivalents of $4.5 billion compared with $4.9 billion sequentially.

The company generated cash flow of $600 million from operational activities and $400 million free cash flow during the quarter under review.

HP returned nearly $700 million to its shareholders in the form of stock repurchases ($461 million) and cash dividends ($236 million).

Guidance

For the first quarter of fiscal 2020, HP predicts non-GAAP earnings between 53 cents and 56 cents.

HP expects the competitive pricing environment and Intel’s (INTC) CPU shortage to pose concerns for its Personal Systems business. The company expects it to continue into the first-half of 2020 and be more impactful in the first quarter.

Moreover, given the softness in the EMEA market, the company anticipates supplies revenues to hurt its Printing business. Further, the company predicts a year-over-year unit market decline in printing, thanks to the drab home market. Also, currency headwinds are a persistent woe.

For fiscal 2020, HP now expects non-GAAP earnings between $2.24 and $2.32 per share, upped from the previous guidance of $2.22-$2.32.

HP expects to return approximately 75% of free cash flow to its shareholders in fiscal 2020.

Zacks Rank & Stocks to Consider

HP currently carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the broader technology sector are Alteryx, Inc. AYX, Fortinet, Inc. FTNT and CommVault Systems, Inc. CVLT, each flaunting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Alteryx, Fortinet and CommVault Systems is currently estimated at 39.9%, 14% and 10%, respectively.

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