A month has gone by since the last earnings report for HP (HPQ Quick QuoteHPQ - Free Report) . Shares have added about 3% in that time frame, underperforming 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 its most recent earnings report in order to get a better handle on the important catalysts.

HP Q2 Earnings Surpass, Revenues Miss Expectations

HP Inc. 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.

Operating Results

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.

How Have Estimates Been Moving Since Then?

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

VGM Scores

Currently, HP has a subpar Growth Score of D, however its Momentum Score is doing a bit better 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 B. 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. Notably, HP has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.