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HP CEO on sales drop: 'It's a challenging environment'

The PC correction and slow growth in the U.S. economy have been a one-two punch to computing giant HP Inc (HPQ).

HP saw fiscal fourth-quarter sales fall 11.2% from a year ago, pushed lower by a 26% decline in the number of notebook computer units sold. Meanwhile, desktop unit sales fell 3% in the quarter and consumer printer unit sales fell 4% while commercial gained 5%.

HP also revealed a new $1.4 billion cost-cutting plan that will see it shed 4,000 to 6,000 employees by fiscal year 2025.

"It's a challenging environment," HP CEO Enrique Lores told Yahoo Finance Live, later adding that a chunk of the cost savings to reinvest in "growth" areas of the business such as gaming.

FILE - This Tuesday, May 24, 2016, file photo shows an HP printer on display at a store, in North Andover, Mass. HP Inc. reports earnings, Wednesday, Aug. 23, 2017. (AP Photo/Elise Amendola, File)
This Tuesday, May 24, 2016, file photo shows an HP printer on display at a store, in North Andover, Mass. (AP Photo/Elise Amendola, File)

Despite the sales drops, the company beat analyst forecasts across the board.

  • Net Sales: $14.8 billion vs. $14.65 billion estimated

  • Personal Systems Sales: $10.3 billion vs. $10.28 billion estimated

  • Printing Sales: $4.5 billion vs. $4.41 billion estimated

  • Diluted EPS: $0.85 vs. $0.84 estimated

Amid the weak top-line results, operating profit margins contracted 240 basis points in HP's personal systems segment. Margins were relatively unchanged in the printing business as HP carefully managed costs and pushed through price increases.

HP shares rose 1% in pre-market trading on Wednesday as he Street viewed the cost-cutting plan favorably.

"To put this in context, that is $0.50 of EPS help in fiscal year 2023 and over $1 of EPS exiting fiscal year 2025 and we believe is a big positive that investors did not expect," said Citi analyst Jim Suva.

The company took a cautious stance for its new fiscal year after the challenging quarter.

For the first fiscal quarter, HP sees EPS in a range of $0.70 to $0.80. Analysts had estimated earnings of $0.86 per share in the current quarter.

The company is modeling for full-year earnings of $3.20 to $3.60 a share. Wall Street had been estimating full-year earnings of $3.61 per share.

Lores noted that the outlook doesn't factor in any further change in the macroeconomic backdrop.

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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