A month has gone by since the last earnings report for HP (HPQ Quick QuoteHPQ - Free Report) . Shares have lost about 10.8% 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 the most recent earnings report in order to get a better handle on the important catalysts.

HP Q4 Earnings & Revenues Beat Estimates

HP delivered better-than-expected results for the fourth quarter of fiscal 2022.

HP reported non-GAAP earnings of 85 cents per share for the fourth quarter, which surpassed the Zacks Consensus Estimate by a penny and came within management’s previously guided range of 79-89 cents.

However, the bottom line declined 10% from the year-ago quarter’s earnings of 94 cents per share. This was mainly due to lower revenues, increased pricing competition and unfavorable currency exchange rates, partially offset by efficient cost management.

HP’s net revenues of $14.8 billion came ahead of the Zacks Consensus Estimate of $14.62 billion. However, the top line declined 11.2% on a year-over-year basis, mainly due to a significant slowdown in consumer demand, unfavorable currency exchange rates, inflationary pressure and supply-chain challenges in some areas. In constant currency (cc), revenues declined 8% in the fourth quarter.

The dismal top line reflected a weak performance in HPQ’s Personal Systems and Printers segments.

Quarter in Detail

Personal Systems revenues (69% of net revenues) came in at $10.3 billion, 13% lower than the year-ago quarter (9% down at cc). The year-over-year plunge reflected continued market softness, unfavorable FX impacts and continuous supply-chain challenges in some areas. Further, consumer revenues decreased 25%, while commercial revenues declined 6%.

HP’s total PC units sold were down 21% on a year-over-year basis. Notebooks registered a year-over-year decline of 26%, while desktop units decreased 3%.

Notebook revenues decreased 23% year over year to $6.45 billion, while desktop sales grew 1% to $2.54 billion. Workstation sales soared 9% to $535 million, while revenues from the Other business unit jumped 63% to $741 million.

Printing business revenues (31% of net revenues) decreased 7% year over year (down 6% at cc) to $4.5 billion, mainly due to lower Supplies and lower Consumer hardware units. These were partially offset by higher Commercial hardware units.

HP’s total hardware units sold decreased 3%. Consumer Hardware units declined 4%, while revenues decreased 7%. Further, Commercial Hardware units increased 5%, and revenues inched up 1%. Meanwhile, Supplies revenues declined 10%.

Region-wise, revenues from America (44%) and the EMEA (31% of fourth-quarter revenues) declined 5% and 22%, respectively. Revenues from the APJ (25%) region decreased 6%.

Operating Results

Segment-wise, Personal Systems’ operating margin contracted 200 basis points (bps) to 4.5%. Unfavorable currency exchange rates and increased promotional activity due to elevated industry channel inventory levels, especially in the Consumer business, caused a year-over-year contraction in the segment’s operating margin.

However, a better product mix, lower commodity costs and variable compensation partially offset the headwinds.

The Printing division’s operating margin expanded 290 bps to 19.9%, driven by favorable overall pricing and operating expense management, including lower variable compensation. However, these were partially offset by an unfavorable mix and higher commodity costs.

HP’s overall non-GAAP operating margin from continuing operations of 8.9% declined 60 bps year over year.

Balance Sheet and Cash Flow

HP ended the fiscal fourth quarter with cash and cash equivalents of $3.2 billion, down from $5.39 billion at the end of the third quarter of fiscal 2022.

During the quarter, HPQ generated operating cash flows of $1.9 billion and free cash flow of $1.8 billion. In fiscal 2022, the company generated operating and free cash flows of $4.5 billion and $3.9 billion, respectively.

HP returned $1 billion to its shareholders in the form of stock repurchases ($750 million) and cash dividends ($249 million) in the fiscal fourth quarter. In fiscal 2022, the company paid out dividends of $1.04 billion and repurchased stocks worth $4.3 billion.

First-Quarter & Fiscal 2023 Guidance

HP initiated guidance for the first quarter and fiscal 2023. For the first quarter of fiscal 2023, HP estimates the non-GAAP EPS between 70 cents and 80 cents.

For fiscal 2023, the company forecasts non-GAAP earnings between $3.20 and $3.60 per share. It estimates generating free cash flow between $3 billion and $3.5 billion in the fiscal.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

The consensus estimate has shifted -8.54% due to these changes.

VGM Scores

At this time, HP has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. 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 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 downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise HP has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.