It has been about a month since the last earnings report for HP (HPQ Quick QuoteHPQ - Free Report) . Shares have added about 16.6% in that time frame, outperforming the S&P 500.

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

HP Crushes Q1 Earnings Estimates on Strong PC Demand

HP kick-started fiscal 2022 on a strong note reporting better-than-expected results for the first quarter. The personal computer and printer maker’s first-quarter earnings and revenues surpassed the respective Zacks Consensus Estimate and marked a significant year-over-year improvement.

HP reported a solid bottom line for the first quarter, wherein its non-GAAP earnings jumped 20% year over year to $1.10 per share from 92 cents reported in the year-ago quarter. Also, quarterly earnings surpassed the Zacks Consensus Estimate of $1.04 per share and management’s guided range of 99 cents to $1.05.

The significant year-over-year increase in earnings reflects the benefits from higher revenues and favorable pricing, a product mix and currency exchange rates, partially offset by higher commodity costs and increased investments in innovation and the go-to-market strategy.

HP’s net revenues increased 8.8% year over year to $17 billion and beat the Zacks Consensus Estimate of $16.76 billion. In constant currency (cc), revenues grew 8.2%.

The robust top line reflects strong demand for HPQ’s personal systems and printers. However, revenues were negatively impacted by continued component supply-chain constraints. Also, pandemic-related factory shutdowns worldwide, along with transportation disruptions and congested ports, negatively impacted HP’s overall sales.

Quarter in Detail

Personal Systems revenues (72% of net revenues) came in at $12.2 billion, 15% higher than the year-ago quarter (up 14% in cc). The year-over-year growth reflected strong demand for PCs and the positive impact of the big shift to mainstream and premium commercials. Further, consumer revenues decreased 1%, while commercial revenues increased 26%.

HP’s total PC units sold were down 6% on a year-over-year basis due to the expected supply-chain challenges, logistics delays and a lower chrome mix. Notebooks registered a year-over-year decline of 9%, while desktop units increased 3%. Notebook revenues increased 14% year over year to $8.42 billion, while desktop sales grew 17% to $2.81 billion. Workstation sales jumped 40% to $534 million.

HP noted that demand for its products under the Personal Systems segment remained strong during the reported quarter. The company stated that despite continued supply-chain constraints, it managed to reduce its order backlog sequentially.

HP is witnessing a strong rebound in its Printing business, which was affected by office closures during the pandemic. However, due to continued manufacturing and component supply constraints, HPQ failed to meet demand.

Printing business revenues (28% of net revenues) decreased 4% year over year (down 5% in cc) to $4.8 billion, mainly due to lower hardware units and supplies revenues, partially offset by favorable pricing in hardware and the growth in industrial graphics and services.

HP’s total hardware units sold decreased 28%. Consumer Hardware units declined 31%, while revenues plunged 23%. Further, Commercial Hardware units decreased 3%, while revenues increased 9%. Supplies revenues declined 2%.

Region-wise, at cc, revenues from the EMEA (35% of 1Q22 revenues) and APJ (25%) climbed 8% and 30%, respectively. However, sales in America (40%) fell 1%.

Operating Results

Segment-wise, Personal Systems’ operating margin expanded 70 basis points (bps) to 7.8%, primarily driven by the favorable pricing, product mix and currency exchange rates, partially offset by higher commodity costs and increased investments in the go-to-market strategy.

The printing division’s operating margin contracted 160 bps to 18.2% on a tough year-over-year comparison, increased commodity and logistics costs, partially offset by the favorable pricing and improved performance at industrial graphics and 3D.

HP’s overall gross margin contracted 130 bps to 19.9%, primarily due to higher Personal Systems’ product mix as well as increased commodity and logistics costs. This was partially offset by favorable pricing and currency exchange rates.

HP’s overall non-GAAP operating margin from continuing operations of 8.8% declined 60 bps year over year on the lower gross margin.

Balance Sheet and Cash Flow

HP ended the fiscal first quarter with cash and cash equivalents of $3.4 billion, up from $4.3 billion at the end of the fourth quarter of fiscal 2021.

During the reported quarter, HPQ generated operating cash flows of $1.66 billion and a free cash flow of $1.4 billion. HP returned $1.8 billion to its shareholders in the form of stock repurchases ($1.51 billion) and cash dividends ($271 million) during the fiscal first quarter. Also, HP returned 127% of its free cash flows.

Second-Quarter and Fiscal 2022 Guidance

Buoyed by the strong first-quarter performance, HP raised its fiscal 2022 non-GAAP earnings per share (EPS) guidance range to $4.18-$4.38 from the $4.07-$4.27 range forecast previously. The company continues to estimate generating at least $4.5 billion of free cash flow during the fiscal year.

On the earnings conference call, HP said that it expects to buy back at least $4 billion worth of its common stock during fiscal 2022.

For the second quarter of fiscal 2022, HP estimates non-GAAP EPS between $1.02 and $1.08. HP anticipates solid demand for personal systems, particularly in the commercial product category, during the current quarter as well as a favorable pricing environment.

However, the company expects that industry-wide component supply constraints might affect its ability to meet demand. Moreover, the ongoing pandemic is expected to cause some manufacturing, port and logistics disruptions at least throughout fiscal 2022. These factors are expected to curb the company’s revenues in the ongoing quarter.

For the printing segment, HP projects robust demand for consumer printers and a continued improvement in the commercial segment as offices reopen. However, it projects the division’s performance in the second quarter to be similar to the first quarter due to continued component shortages and logistics delays.

Moreover, the company expects that the current situation in Ukraine and sanctions against Russia will have a financial impact on its quarterly performance in the near term. HPQ revealed that it has stopped all shipments to Russia complying with U.S. sanctions.

The current situation in the two countries is likely to negatively impact its second-quarter fiscal 2022 earnings by 2 to 3 cents per share, which the company has already factored in its guidance range.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month.

VGM Scores

At this time, HP has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, 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 A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, HP has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.