HPQ tumbles 9% as PC market recovery stalls
2min read HP reported Q4 adjusted EPS of $0.93, in line with consensus estimates, while revenue slightly exceeded expectations at $14.06 billion, compared to the $13.99 billion forecast. This marked a modest 1.7% year-over-year increase in revenue. The results reflected solid execution, particularly in the Printing segment, but were offset by ongoing challenges in the Personal Systems segment. However, disappointing guidance for Q1 and FY25 EPS weighed heavily on investor sentiment, driving an 8% drop in after-hours trading.
HP provided Q1 FY25 adjusted EPS guidance of $0.70-$0.76, below the $0.85 consensus, and a full-year forecast of $3.45-$3.75, with a midpoint slightly below analyst expectations of $3.61. The company also guided free cash flow (FCF) in the range of $3.2 billion to $3.6 billion for FY25, implying low-single-digit growth compared to FY24’s $3.32 billion. While HP remains confident in achieving modest growth, the subdued guidance reflects persistent weakness in the PC market and secular challenges in printing.
Revenue from Personal Systems, which includes PCs and laptops, grew 2% year-over-year to $9.59 billion, but fell short of the $9.74 billion estimate. Commercial PC revenue rose 7%, driven by demand from enterprise customers, while consumer PC revenue dropped 9% amid ongoing sluggish demand. HP highlighted that AI PCs accounted for 15% of unit sales during the quarter and are expected to reach 25% in FY25. However, AI PCs have yet to drive significant revenue growth, with unit sales rising just 1% year-over-year.
The Printing segment posted revenue of $4.45 billion, up 1% year-over-year and above the $4.25 billion consensus estimate. This marked the first quarter of year-over-year growth in the segment after 11 consecutive quarters of contraction. HP attributed the improvement to better pricing and operational execution. Nonetheless, secular headwinds in the printing industry continue to pose challenges for sustained growth.
The ongoing transition to Windows 11 and end-of-support for Windows 10 in 2025 is expected to spur PC upgrade cycles, though adoption has been slower than anticipated. CEO Enrique Lores noted that consumer adoption of AI PCs remains sluggish, with faster uptake in commercial markets. HP continues to position itself as a leader in AI PCs, but analysts remain cautious about the technology's near-term impact on demand. The company’s AI strategy includes higher average selling prices for AI-enabled PCs, but broader unit growth has yet to materialize.
HP shares trade at a forward price-to-earnings (P/E) ratio of 10.84x, significantly below peers such as Dell at 15.51x and Microsoft at 30.94x. The discounted valuation reflects HP’s exposure to cyclical PC demand and its relatively slow adoption of AI technologies. Analysts see limited near-term catalysts for a re-rating, given ongoing challenges in consumer demand and the lack of a robust PC recovery. However, HP’s strong cash flow generation and commitment to shareholder returns, including a 5% dividend increase, provide some support for the stock.
Analysts were mixed in their reactions to HP’s earnings. TDCowen maintained a Hold rating while raising its price target to $39 from $32, citing ongoing softness in end markets despite solid progress in cost restructuring. Morningstar reiterated its cautious stance, noting that AI PCs are unlikely to drive a structural change in PC demand in the near term. Meanwhile, Citi remained optimistic, highlighting the potential for a stronger second half of FY25 as AI adoption and Windows 11 upgrades gain momentum.
HP delivered a mixed quarter, with in-line earnings, slightly better-than-expected revenue, and improved performance in the Printing segment. However, weak guidance and persistent challenges in the PC market overshadowed these positives. While the company is making progress in AI PCs and cost restructuring, the benefits are unlikely to materialize meaningfully until FY25. Investors remain cautious, as reflected in the sharp post-earnings stock decline, though HP’s strong cash flow and shareholder return focus provide some long-term appeal.