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HP (HPQ) Q2 Earnings & Revenues Beat Estimates, Up Y/Y

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HP Inc. (HPQ - Free Report) reported better-than-anticipated second-quarter fiscal 2021 results on solid PC demand amid the COVID-19 pandemic-induced remote-working and online-learning wave. Strong rebound in the company’s Printing business, which was affected by office closures during the pandemic, also contributed significantly to overall growth of the top and bottom lines.

HP delivered fiscal second-quarter non-GAAP earnings from continuing operations of 93 cents per share, up from the year-ago quarter’s 51 cents. Moreover, quarterly earnings surpassed the Zacks Consensus Estimate of 89 cents per share as well as management’s guided range of 84-90 cents.

HP’s net revenues jumped 27.3% year over year to $15.9 billion and beat the Zacks Consensus Estimate of $15.1 billion. In constant currency (cc), revenues increased 25.4%.

HP Inc. Price, Consensus and EPS Surprise HP Inc. Price, Consensus and EPS Surprise

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

Quarter in Detail

Personal Systems revenues (67% of net revenues) came in at $10.6 billion, up 27% year on year (up 25% in cc). Further, consumer and commercial revenues jumped 72% and 10%, respectively.

HP’s total units sold climbed 44% from the year-ago quarter. Notebooks registered a whopping 63% jump, while desktop units dropped 5%, year on year. While notebook revenues increased 47% year over year, desktop and workstation sales were down 8% and 7%, respectively.

Printing business revenues (33% of net revenues) went up 28% year over year (up 27% in CC) to $5.3 billion. HP’s total hardware units sold increased 42%. Consumer Hardware units and revenues grew 45% and 77%, respectively. Supplies revenues rose 17%. Further, Commercial Hardware units and revenues increased 22% and 34%, respectively.

Region wise, at cc, revenues from Americas (43% of net revenues) and Europe, Middle East and Africa (EMEA) (36%), and Asia-Pacific and Japan (APJ) (21%) increased 32%, 19% and 23%, respectively.

Operating Results

Segment wise, Personal Systems operating margin expanded 10 basis points (bps) to 6.7%. In addition, printing operating margin expanded 470 bps to 17.9% on higher revenues.

Meanwhile, the company’s overall non-GAAP operating margin from continuing operations of 10.2% advanced 150 bps, year on year.

Balance Sheet and Cash Flow

HP ended the fiscal second quarter with cash and cash equivalents of $3.4 billion compared with the $4.16 billion recorded in the prior quarter.

During the reported quarter, the company generated operating cash flows of $1.4 billion and $1.3 billion in free cash flow. HP returned $1.84 billion to its shareholders in the form of stock repurchases ($1.6billion) and cash dividends ($239 million) during the fiscal second quarter. In the second quarter, HP returned 137% of its free cash flows.

During the first half of fiscal 2021, the company generated operating cash flow of $2.47 billion. It bought back $2.99 billion worth of its common stocks and paid $489 million in cash dividends.

Guidance

Buoyed by a stellar fiscal second-quarter performance, management raised the non-GAAP earnings forecast for fiscal 2021 to $3.40-$3.50 per share from the $3.15-$3.25 projected earlier. Also, the company estimates to generate at least $4 billion of free cash flow during the fiscal year.

Notably, during the first-quarter fiscal 2021 earnings conference call, HP had said that it estimates to return approximately $1 billion per quarter at minimum to shareholders in the near term.

For third-quarter fiscal 2021, HP estimates non-GAAP earnings between 81 cents and 85 cents. For the printing segment, HP projects robust demand for consumer printers, and continued improvement in commercial segment as offices reopen.

HP anticipates solid demand for personal systems during the rest of the fiscal 2021 on the rising working-and-learning-from-home wave. Nevertheless, the company expects that the industry-wide component supply constraints might impact its ability to meet demand.

Furthermore, management predicts gross margin pressure in the second-half of fiscal 2021 due to elevated costs and commodities and logistics across both its business units, Personal Systems and Printing. Additionally, it sees more normalization in the market and pricing environment during the second half of fiscal 2021.

Zacks Rank & Other Stocks to Consider

HP currently carries a Zacks Rank #2 (Buy).

Other top-ranked stocks in the broader technology sector include Lam Research Corporation (LRCX - Free Report) , ASML Holding N.V. (ASML - Free Report) and Facebook . While Lam Research and ASML Holding sport a Zacks Rank #1 (Strong Buy), Facebook carries a Zacks Rank #2, at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

The long-term earnings growth rate for Lam Research, ASML Holding, and Facebook is currently pegged at 32.8%, 29.8% and 20.1%, respectively.

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