HPQ Earnings Preview: Revenues To Report Marginal Growth In Constant Currency

Hewlett-Packard Incorporated (NYSE:HPQ) is set to announce its fiscal Q1 results on Wednesday, February 22. ^[1] We expect the company to report a marginal improvement in revenues despite the downturn in shipments and sales across both of its business divisions (PCs and Printer Hardware and Supplies). Below we discuss what to expect.

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.

New Launches In The PC Segment To Boost Market Share And Revenues

The Personal Systems division is the company’s second largest division and makes up 46% of its stock value. The secular decline in the global PC industry continued in 2016. According to IDC, global PC shipments declined by over 5.7% in 2016, while HPQ’s PC shipments grew by 1.3% in the same period. ^[2]

While HPQ was able to outperform the industry by selling more PCs during the period than the prior year, per IDC, its average sales prices continued to decline due to a shift in mix and competitive pricing. This could end up offsetting the growth in Q1. However, the company is selectively focusing on the high end segment of the market, which has resulted in improvement in HPQ’s margins. Going forward, HPQ is well positioned in the PC market as it continues to launch premium and mid-tier PCs at competitive prices. This should help the company report marginal revenue growth in Q1.

Printer Segment Suffers As Change In SCM Strategy Dents Growth

HPQ’s printer division is its largest division, and we estimate that it accounts for about 55% of its value. In Q3 2016, the secular decline in printer hardware continued, as shipments have declined by 3%. HPQ’s shipments declined by 4.7% despite the company being the leader in the space.

The decline in shipments can be attributed to a decline in sales of channel inventory as the company has changed its supply model, which continued to impact channel inventory. For Q1, we expect that as the company continues to tweak its supply chain management strategy, its supplies revenues will continue to negatively impact revenues. As the underlying industries are witnessing secular declines, we expect the company’s revenues to remain under pressure in 2017, albeit at a slower rate than the industry. However, we expect ASPs to grow both sequentially and year over year, driven by both mix and pricing.

At present, we have a $15 price estimate for the company’s stock, which is slightly below the current market price.

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1. HP investor relations [↩]
2. PC Market Stabilizes with Solid Fourth Quarter Shipments Despite Component Shortages, According to IDC, January 11 2017 [↩]