HP Warns of Profit Impact from Trump's China Tariffs; Stock Slips

HP Inc. (HPQ) has warned investors that President Trump's planned tariffs on Chinese goods could negatively impact the company's profitability. The tech giant, which manufactures a significant portion of its products in China, anticipates that the increased tariffs will lead to higher production costs and potential supply chain disruptions. As a result, HP's stock price has slipped in recent trading sessions.



HP has been proactive in dealing with the potential impact of looming tariffs on goods manufactured in China. The company has been shifting its manufacturing operations and purchasing more inventory ahead of the expected tariffs. HP expects that by the end of fiscal 2025, more than 90% of its products sold in North America will be built outside of China. This strategic move aims to mitigate the impact of potential tariffs on the company's profitability in the long term.

Despite these challenges, HP's stock (HPQ, Financial) remained relatively stable in after-hours trading, closing at $33.13, marking a 1.5% increase for the year. The company's revenue for the quarter ending January 31 rose by 2.4% to $13.5 billion, surpassing analysts' average estimate of $13.4 billion. This growth was primarily driven by a 10% increase in commercial computer sales.

HP's CEO, Enrique Lores, highlighted that increased costs and tariffs on imported goods are pressuring profits. However, he noted that HP's efforts to diversify its supply chain are mitigating much of the impact. Lores made these comments while discussing HP's fiscal fourth-quarter earnings, which came out on Tuesday afternoon. The company topped expectations on both the top and bottom lines.

In terms of print, HP grew units and share, owing in part to product improvements and efforts to reduce costs. In personal systems, one trend for HP and other PC makers has been the introduction of AI PCs that can do artificial-intelligence tasks on-device. Lores said AI PCs met the company's expectations and that HP is seeing "positive" reception to recent introductions.

HP's quarterly net income amounted to $906 million, or 93 cents a share, compared with $974 million, or 97 cents a share, in the year-earlier period. On an adjusted basis, the company earned 93 cents a share, flat with the FactSet consensus. For the first quarter, HP models 70 cents to 76 cents in adjusted earnings per share, whereas analysts were expecting 85 cents. HP said its estimates exclude 13 cents per share related to restructuring and other charges.

Looking at the full year, the company models $3.45 to $3.75 in adjusted EPS, which compares with the $3.38 FactSet consensus. HP's ongoing plan leads to a jump in inventory in the fiscal first quarter; up to 2,000 layoffs planned in additional cost-cutting. The PC and printing giant said Thursday that as part of its ongoing work to shift more of its manufacturing away from China, it expects that by the end of fiscal 2025, more than 90% of HP’s products sold in North America will be built outside of China.

In conclusion, HP's proactive approach to supply chain diversification and inventory management positions it to mitigate the impact of potential tariffs and maintain its market share in the face of potential disruptions. By reducing its dependence on Chinese manufacturing and optimizing its supply chain for efficiency, HP can better navigate the geopolitical landscape and maintain its profitability and competitiveness in the global market.