HPQ Tests YTD Lows following Mixed Report

HP Inc. (NYSE: HPQ) reported its fiscal first-quarter results, delivering revenue slightly ahead of expectations but in-line earnings, as the company continues to navigate a mixed demand environment. The report highlighted strength in the Personal Systems segment, driven by commercial PC sales and AI-capable systems, while the Printing business lagged. The company reaffirmed its full-year guidance but issued a slightly softer-than-expected outlook for the second quarter, leading to a decline in its stock price.

Earnings and Revenue Performance

HPQ reported adjusted earnings per share of $0.74 for the first quarter, matching consensus expectations but falling from $0.81 in the prior year. Revenue came in at $13.5 billion, exceeding the expected $13.38 billion and reflecting a 2.4% year-over-year increase. The upside was primarily driven by growth in the Personal Systems segment, which saw revenues rise 5% to $9.22 billion, outperforming the $9.13 billion estimate. Meanwhile, Printing segment revenues declined 2.4% to $4.27 billion, slightly above expectations of $4.26 billion.

Market Environment and Business Trends

HP’s results demonstrated a continued recovery in the PC market, particularly on the commercial side, where net revenue grew 10%. Consumer PC demand remained weak, with unit volumes declining 7%, reflecting ongoing macroeconomic challenges and sluggish consumer spending. AI-capable systems were a key growth driver, supporting HP’s broader transformation strategy.

In the Printing segment, commercial revenue declined 7%, reflecting weakness in China and a competitive pricing environment. Consumer Printing revenue increased 5%, providing a partial offset. HP has been working to stabilize its Printing business by focusing on premium product categories and cost efficiency measures.

Key Metrics and Financial Highlights

- Adjusted operating margin was 7.3%, down from 8.4% a year ago and slightly below estimates of 7.45%, reflecting cost pressures.

- Free cash flow was $70 million, with net cash provided by operating activities of $0.4 billion.

- Stock repurchases totaled $100 million for the quarter, with 2.7 million shares repurchased.

- Dividend payments amounted to $0.3 illion, with a quarterly dividend of $0.2894 per share.

Outlook and Guidance

For the second quarter, HP provided a cautious outlook, guiding adjusted EPS in the range of $0.75 to $0.85, compared to the consensus estimate of $0.85. The full-year EPS guidance remained unchanged at $3.45 to $3.75, with free cash flow expectations of $3.2 billion to $3.6 billion.

HP’s guidance reflects continued investments in AI, cost-cutting initiatives under its Future Ready plan, and a shifting demand environment. CFO Karen Parkhill emphasized HP’s ability to manage cost pressures and reiterated confidence in achieving second-half EPS growth through a mix of pricing, cost improvements, and an improved PC market environment.

Tariffs and Supply Chain Strategy

A key topic on the earnings call was the impact of U.S. tariffs on Chinese imports. HP confirmed that added costs from tariffs have been factored into both second-quarter and full-year guidance. The company has been aggressively diversifying its supply chain, with a target of manufacturing over 90% of its North American products outside of China by the end of fiscal 2025. Management expressed confidence that this strategic shift will help mitigate long-term tariff risks and ensure greater flexibility in sourcing components.

Market Reaction and Technical Levels

HPQ shares fell in after-hours trading following the earnings report, with investors reacting to the softer near-term guidance. The stock is now testing its February 3 lows around $31, a critical support level. The decline reflects broader concerns about potential macroeconomic headwinds, tariff-related costs, and a competitive pricing environment, particularly in China.

Conclusion

HP delivered solid first-quarter results, with strength in commercial PCs and AI-driven growth helping offset continued weakness in consumer demand and the Printing segment. While revenue performance was slightly better than expected, a cautious near-term outlook weighed on investor sentiment. The company remains focused on cost discipline and supply chain diversification to navigate ongoing challenges. With shares now testing key support levels, HP’s performance in the coming quarters will be closely watched, particularly in terms of PC market trends, AI adoption, and tariff mitigation strategies.