HPQ Earnings: Growth In PC Sales Offsets The Decline In Printer Revenues

Hewlett-Packard Inc. (NYSE:HPQ) announced its Q4 results on Tuesday, November 22nd.  The results were better than expected, buoyed by the Personal Systems division, which reported improvement in both market share and product mix. However, the decline in printer revenues continued to negatively impact topline growth. As a result, the revenues for the company grew by 2% (4% in constant currency) to $12.5 billion. The results for the company are as follows:

For precise figures, please refer to our full analysis for Hewlett Packard Incorporated

Outlook For Q1 2017 And 2017

For Q1 2017, HP estimates GAAP diluted net EPS from continuing operations to be in the range of $0.33 to $0.36 and non-GAAP diluted net EPS to be in the range of $0.35 to $0.38. For 2017, HP estimates GAAP diluted net EPS from continuing operations to be in the range of $1.47 to $1.57 and non-GAAP diluted net EPS to be in the range of $1.55 to $1.65.

The Personal Systems Division Reports Growth As Market Share Improves

The Personal Systems division is the company’s second largest division and makes up nearly 45% of its stock value.  While decline in worldwide PC shipment continues, the company reported that its worldwide share improved to 21.4% on the back of new launches for the premium consumer PC market.

The company reported 5% growth in total units shipped during the quarter. While consumer revenues grew by 7%, commercial revenues grew by 3% year over year. As a result, the company reported 4% year-over-year growth (5% decline in constant currency) in revenues to $8.1 billion. The operating profit grew by 23.1% to $346 million, or 4.3% of revenue, benefiting from scale, operating cost savings, and increase in sales of higher margin units. However, average sales price for the company continued to decline, due to a shift in mix and competitive pricing. Going forward, HPQ is well positioned in the PC market as it continues to launch premium and mid-tier PCs such as like Elite Slice, EliteBook with privacy screen, OMEN gaming, Chromebook 13, Pavilion Wave, and Spectre x360 at competitive prices. This should help the company to report revenue growth in the ensuing quarters.

Despite Improvement in Printer Hardware Revenues, Supplies Dents Topline Growth  

The printer division is  HPQ’s largest vertical and makes up 55% of the estimated stock value. During the quarter, the printer division reported an 8% year-over-year decline (6% in constant currency) in revenues to $4.6 billion in the quarter. While the hardware revenue grew due to a 1% increase in hardware units sales, supplies revenues declined by 12%.

Sequential share gains of 0.4 points in laser and 1 point in ink hardware helped the company to report 10% year-0ver-year growth in commercial hardware and 3% growth in consumer hardware.  Moreover, ASPs grew both sequentially and year over year, driven by both mix and pricing.  Furthermore, managed print services reported double-digit growth in total contract value.

However, supplies revenues declined by 12% year over year (10% in constant currency), due to change in thesupplies model that continued to impact channel inventory. Nevertheless, the company expects supplies revenue growth in constant currency by the end of 2017.  To shore up its hardware printer revenues, HP in September announced that it would buy Samsung Electronics Co Ltd’s (005930.KS) printer business for $1.05 billion. This transaction is expected to close by the end of Q1 2017 (FYQ2 2017). This would help the company to report growth in printer revenues for FY2017.

We are in the process of updating our HP model. At present, we have a $14.5 price estimate for the stock, which is 9% below the current market price.

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