HPQ Earnings: Growth In PC Sales Boosts Revenues Despite Decline In Printer Division

Hewlett Packard Inc. (NYSE:HPQ) announced its fiscal Q1 results on Wednesday, February 22.  The results were better than expected, buoyed by the Personal Systems division, which reported double-digit growth in revenues and improvement in both market share and product mix. However, the decline in printer revenues continued to negatively impact top line growth. Overall, the company’s revenues grew by 4% (5% in constant currency) to $12.7 billion. Below we provide an overview of the key takeaways from the company’s earnings release.

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

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 46% of its value, according to our estimates. While the decline in worldwide PC shipments continues, the company reported that its worldwide share improved to 21.7% on the back of new launches for the premium consumer PC market.

The company reported 8% growth in total units shipped during the quarter. While consumer revenues grew by 15%, commercial revenues grew by 7% year over year. And while the company continued to report tepid growth for its desktop sales, its laptop revenues and shipments grew by 16% and 12%, respectively. As a result, the segment saw 10% year-over-year growth in revenues to $8.11 billion, while its operating profit grew by 36.68% to $313 million,  benefiting from scale, operating cost savings, and a favorable product mix. Furthermore, PC average selling prices were up both year-over-year and sequentially, driven by favorable pricing and a shift in product mix to the premium segment of the market. 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 to report revenue growth in the coming quarters.

Despite Improvement in Printer Hardware Revenues, Supplies Dents Top Line Growth  

The printer division is HPQ’s largest vertical and makes up 54% of its estimated value. During the quarter, the printer division reported a 3% year-over-year decline (2% in constant currency) in revenues to $4.83 billion in the quarter. While hardware revenue declined by 4.5% despite a 6% increase in hardware units sales, supplies revenues declined by 3% year-on-year (2% in constant currency).

Sequential share gains of 3.2 points in laser and 0.2 points in ink hardware helped the company to report 2% year-over-year growth in commercial hardware units and 7% growth in consumer hardware units. HP’s new product Sprocket, a pocket photo printer for smartphones, helped the company to shore up unit sales of printer hardware in the quarter. However, ASPs were down mid-single digits year over year, driven by both mix and pricing.

Supplies revenue saw a decline once more, as revenues declined by 3% year over year (2% in constant currency), due to a change in the supply model that continued to impact channel inventory. The company expects supplies revenue growth in constant currency terms by the end of 2017.

We are in the process of updating our HP model. At present, we have a $15 price estimate for the stock, which is slightly below the current market price.

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