HP Profit Slides, PC Sales Pick Up -- WSJ
August 25 2016 - 3:03AM
Dow Jones News
By Don Clark
HP Inc.'s revenue and earnings shrank in its most recent
quarter, but the company showed signs of stabilizing its declining
personal-computer business, its largest revenue generator.
The Palo Alto, Calif.-based company said its personal-systems
revenue was flat in the latest quarter after five quarters of
declines, with unit PC sales up 4%. Revenue fell 14% in its
printing business -- which generates most of HP's profits --
reflecting greater use of email and file sharing rather than
printing documents.
Shares fell 5.4% to $13.63 in after-hours trading on a profit
outlook for the current quarter that was below analysts'
expectations.
HP pointed to signs of improvement in the printer business, and
the company's overall revenue and profit topped analyst
expectations.
Dion Weisler, HP's chief executive, said he was "incredibly
pleased" with the progress made in the quarter.
HP became independent last year as part of the breakup of the
former Hewlett-Packard Co. While HP's two major businesses have
failed to grow, its stock is up more than 21% in 2016 because of
its steady flow of cash, much of which it uses for dividends and
stock buybacks.
The company generated $1 billion in free cash flow in the third
quarter, putting it on target to generate between $2 billion and
$2.3 billion in free cash flow for the fiscal year ending in
October.
"It's almost in the bag," said Cathie Lesjak, HP's chief
financial officer.
The No. 2 PC maker behind Lenovo Group Ltd., HP has suffered
along with rivals as consumer spending has shifted to products such
as smartphones. But market researchers recently concluded that the
rate of decline had moderated in the second quarter.
International Data Corp. in July estimated HP's quarterly PC
shipments rose 5.1% over a year ago, though the overall PC market
fell 4.5%. Mr. Weisler has driven the company to focus on
faster-growing parts of the market that command higher margins,
such as gaming PCs and premium notebook models.
He said Wednesday that the strategy is paying off, as HP gained
market share and average sales prices for consumer PCs rose in the
latest quarter.
The numbers are less rosy on the printer side. HP on Wednesday
said revenue from toner and ink supplies fell 18%, while printing
hardware unit sales slid 10%.
Another factor affecting HP's printer results was a decision to
reduce inventory at its dealers and distributors. Mr. Weisler in
June announced a strategy shift aimed at reducing distributor
inventories and moving away from using periodic promotions to drive
demand.
HP at the time predicted printing supplies revenue would go down
by about $225 million in each of its third and fourth quarters
because of the reduction of inventory in its distribution channels.
But it predicted that much of the revenue reduction would be offset
by proceeds from the deal to sell some software assets to OpenText
Corp.
Amit Daryanani, a RBC Capital Markets analyst, called the
third-quarter results solid but the current quarter's outlook "much
softer" than expected.
"Management is taking a very cautious approach to its forecast,"
added Bill Kreher, an analyst at Edward Jones.
Ms. Lesjak said the fourth-quarter outlook largely reflects the
timing of costs associated with the shifts in its printing-supplies
strategy. But she and Mr. Weisler also said price competition
remains tough in PCs and printing.
HP's earnings for the three months ended July 31 declined 8% to
$783 million, or 45 cents a share, from the $854 million, or 47
cents a share, in the same period a year earlier.
Revenue fell 4% to $11.89 billion.
For its current quarter, HP said it expects to report adjusted
per-share earnings of between 34 cents and 37 cents. Analysts'
average estimate called for earnings of 41 cents a share, according
to Thomson Reuters. HP didn't provide a revenue projection.
On an adjusted basis that excludes one-time items, HP said
earnings per share were 48 cents. In June, it forecast per-share
earnings on that same basis of between 43 cents and 46 cents.
Analysts polled by Thomson Reuters had projected, on average, 44
cents a share in earnings on revenue of $11.4 billion.
For its fiscal-year, HP projected adjusted profit per share of
between $1.59 and $1.62. It had previously projected a range of
$1.59 to $1.65 a share.
Write to Don Clark at don.clark@wsj.com
(END) Dow Jones Newswires
August 25, 2016 02:48 ET (06:48 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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