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HP beats analyst expectations in third quarter, reports $11.9 billion revenues with stabilized PC sales

HP earnings
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HP, the second-largest PC manufacturer after Lenovo, recently announced its third quarter earnings report. It reported a revenue of $11.9 billion and $783 million in earnings (48 cents a share). Although the numbers declined from the period last year but they managed to beat analyst estimates which had pegged revenues at $11.44 billion and an EPS of 44 cents.

The revenue showed a decline of 4% from the same period last year whereas earnings fell by 8% from $854 million. However, the encouraging aspect of this quarter for HP was its PC business which generates maximum revenues.
After witnessing a decline for five straight quarters, PC segment revenue was flat this quarter.

Most importantly, unit PC sales rose by 4% in this quarter. Notably, IDC had recently reported a 5.1% increase in PC shipments by HP. This was despite a fall of 4.5% in the overall PC market.

Dion Weisler, CEO of HP has shifted the focus of HP on faster-growing segments with higher margins like gaming PCs and premium notebook models. He said during the earnings call that he was “incredibly pleased” with the progress in this quarter and their strategy was paying off.

On top of it, the company also managed to generate a free cash flow of $1 billion in the third quarter. It aims to generate $2-$2.3 billion cash in this fiscal year which would end in October.

However, things are not rosy for HP in its printer and toner and ink supplies business. The sales of printing hardware units fell by 10% and net revenue from them was down by 14%. Net revenues from toner and ink supplies also showed a decline of 18%.

Notably, this segment is the most profit making segment of HP. However, the management has changed its strategy recently which has affected the printer sales. The company decided to reduce inventories at dealers and distributors and also stopped periodic promotions to drive demand.

The company had already predicted a decline of $225 million in revenues from printing supplies in both third and fourth quarter due to these changes. However, it expected this decline to be offset by its sale of some software assets to OpenText Corp.

HP has a market cap of about $24 billion. It has been struggling a bit since its split from Hewlett-Packard Enterprises (HPE) last year. HPE now focusses on service business whereas HP deals in PCs and printers.

After the split, stock prices of both companies have managed to grow considerably. However, HPE stands much ahead of HP with 43% growth compared to 24% growth in HP.

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