It has been about a month since the last earnings report for HP (HPQ Quick QuoteHPQ - Free Report) . Shares have lost about 2.4% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is HP due for a breakout? Before we dive into how investors and analysts have reacted as 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 Beats on Q3 Earnings Estimates

HP delivered third-quarter fiscal 2019 non-GAAP earnings from continuing operations of 58 cents per share that beat the Zacks Consensus Estimate of 55 cents. Additionally, the figure increased 11.5% on a year-over-year basis.

Also, HP’s net revenues of $14.6 billion surpassed the Zacks Consensus Estimate of $14.5 billion and inched up 0.1% year over year as well. Moreover, in constant currency (cc), revenues inched up 2%.

HP’s results in the fiscal third quarter benefited from strong growth in Personal Systems revenues. However, weakness in the Printing business is a lingering challenge.

Buoyed by an improving market share across the PC and Printer businesses, HP lifted its non-GAAP earnings guidance for fiscal 2019.

Personal Systems (66.4% of net revenues) revenues were $9.7 billion, up 3% year over year. Further, commercial revenues increased 10% but consumer revenues were down 11%.
 
HP’s total units sold rose 5% from the year-ago quarter. Also, Notebooks registered a 2% rise while desktop units increased 11% year over year.

Desktop (32% of Personal Systems revenues) and workstation (6.3% of Personal Systems revenues) revenues increased 8% and 4%, respectively. However, revenues from Notebooks (58%) were flat.

The company launched its latest EliteBook x360 line-up during the quarter, which includes convertibles with up to 24 hours of battery life. It also added malware-detection system called HP Sure Sense across its latest EliteBook and ZBook business laptops.

The unveiling of HP ENVY Series and the growing momentum of its OMEN ecosystem in gaming is making the management upbeat.

Printing business revenues (33.6% of net revenues) were down 5% year over year to $4.9 billion.

HP’s total hardware units sold declined 9%. Moreover, Consumer Hardware unit fell 10%, Commercial Hardware unit dipped 4% on a year-over-year basis.

Commercial Hardware revenues inched up 3% year over year. However, 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.
    
The company continues to make progress in the contractual market, which includes A3, by leveraging its differentiated technology and IP to capture opportunities in the market. HP achieved 10% A3 market share in the calendar second quarter. Growth in both contractual office business and consumer Instant Ink portfolio is a positive.

Region wise, at cc, revenues from Americas (45% of net revenues) and EMEA (33%) were intact. Asia-Pacific and Japan regions improved 11% year over year and 22%, respectively.

Operating Details

In third-quarter fiscal 2019, gross margin was 19.9%, up 150 basis points (bps) on a year-over-year.

HP now expects non-GAAP earnings between $2.18 and $2.22 per share, upped from the previous guidance of $2.14-$2.21.

Non-GAAP operating expenses rose 9% year over year to $1.8 billion due to investments in innovation, targeted marketing spend as well as in its digital infrastructure.

Segment wise, Personal Systems operating margin expanded 170 bps to 5.6%, 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 7.6% expanded 40 bps year over year.

Balance Sheet and Cash Flow

HP ended third-quarter fiscal 2019 with cash and cash equivalents of $4.9 billion compared with $3.5 billion sequentially.

The company generated cash flow of $2.3 billion from operational activities and $2.2 billion free cash flow during the quarter under review.

HP returned nearly $800 million to shareholders in the form of stock repurchases ($533 million) and cash dividends ($240 million).

 

Guidance

For the fourth quarter of fiscal 2019, HP predicts non-GAAP earnings between 55 cents and 59 cents.

HP expects the competitive pricing environment and Intel’s CPU shortage to pose concerns for its Personal Systems business. Given the softness in the EMEA market, the company anticipates supplies revenues to dent its Printing business.

Notably, supplies revenues are projected to decline nearly 4-5% for fiscal 2019. Further, currency headwinds are a persistent woe.

HP still expects to return approximately 75% of free cash flow to its shareholders in fiscal 2019.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months.

VGM Scores

Currently, HP has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top quintile 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

HP has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.