HP Inc. ( HPQ Quick Quote HPQ - Free Report) reported second-quarter fiscal 2023 non-GAAP earnings of 80 cents per share, which surpassed the Zacks Consensus Estimate of 76 cents and came within management’s previously guided range of 73-83 cents.
However, the bottom line declined 26% from the year-ago quarter’s earnings of $1.08 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 $12.9 billion fell short of the Zacks Consensus Estimate of $13.07 billion and declined 21.7% year over year. The dismal top-line performance was mainly due to a significant slowdown in consumer demand, tightening corporate budget amid ongoing macroeconomic challenges and unfavorable currency exchange rates.
In constant currency (cc), revenues declined 18% in the second quarter. The dismal top line reflected a weak performance in HPQ’s Personal Systems (PS) and Printers segments.
Quarter in Detail
Personal Systems revenues (63.3% of net revenues) came in at $8.2 billion, which was 29.1% lower than the year-ago quarter’s figure (24.8% down at cc). The year-over-year plunge reflected a continued decline in consumer and commercial PC demand and excess inventory levels at channel partners. Further, consumer revenues decreased 39%, while commercial revenues declined 24%.
HP’s total PC units sold were down 28% on a year-over-year basis, with a 34% decline in Consumer PS shipments and 23% slump in Commercial PS units. Revenues from the Consumer PS and Commercial PS segments registered a year-over-year decline of 39% and 24%, respectively.
The printing business’ revenues (36.7% of net revenues) decreased 5% year over year (down 2% at cc) to $4.7 billion, mainly due to lower Consumer Printing and Supplies revenues. Total Hardware units declined 4% year over year, with Consumer Printing units decreasing 5% and Commercial Printing shipments remaining flat.
HPQ registered a year-over-year decline of 19% in the Consumer Printing segment’s revenues, while the Commercial Printing segment’s revenues increased 5%.
Region-wise, revenues from America (42% of the total second-quarter fiscal 2023 revenues), the EMEA (34%) and the APJ (24%) declined 21%, 27% and 14%, respectively.
Segment-wise, Personal Systems’ non-GAAP operating margin contracted 150 basis points (bps) to 5.4%. Unfavorable currency exchange rates, increased promotional activity and favorable prior-period R&D partner funding caused a year-over-year contraction in the segment’s operating margin. However, Poly contributions and lower costs, including variable compensation and commodity costs, partially offset the headwinds.
The Printing division’s non-GAAP operating margin shrunk 10 bps to 19%, due to unfavorable overall pricing and operating expense management, including higher variable compensations, commodity costs and the promotional pricing of favorable currency.
HP’s overall non-GAAP operating margin from continuing operations of 10.1% declined 20 bps year over year.
Balance Sheet and Cash Flow
HP ended the fiscal second quarter with cash and cash equivalents of $1.94 billion, up from $1.77 billion at the end of the previous quarter.
During the quarter, HPQ generated $636 million worth of cash for operational activities and $541 million in free cash flow.
HP returned $259 million to its shareholders in the form of cash dividends in the fiscal second quarter.
Third-Quarter & Fiscal 2023 Guidance
For the third quarter of fiscal 2023, HP estimates non-GAAP earnings between 81 cents and 91 cents per share.
The company reiterated its fiscal 2023 earnings guidance in the range of $3.30-$3.50 per share. It also continues to estimate generating free cash flow between $3 billion and $3.5 billion in the fiscal 2023.
Zacks Rank & Stocks to Consider
HP currently has a Zacks Rank #3 (Hold). Shares of HPQ have declined 20.4% over the past year.
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