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HP (HPQ) Q4 Earnings Beat, Stock Falls on Dim Q1 Forecast

HP Inc. HPQ reported better-than-expected financial results for the fourth quarter of fiscal 2023. However, shares of the personal computer (PC) manufacturer fell 3.3% during Tuesday’s extended trading session as the non-GAAP earnings forecast for the first quarter of fiscal 2024 missed the Zacks Consensus Estimate.

Before delving deeper into the forecast, let us discuss the fourth quarter first.

HP reported fourth-quarter fiscal 2023 non-GAAP earnings of 90 cents per share, which surpassed the consensus mark by a penny and came within management’s previously guided range of 85-97 cents. Moreover, the bottom line improved 10% on a year-over-year basis, mainly driven by lower commodity and logistics expenses and efficient cost management, partially offset by a reduction in revenues and unfavorable currency exchange rates.

HP’s net revenues of $13.8 billion came in higher than the Zacks Consensus Estimate of $13.68 billion but declined 6.5% year over year. In constant currency (cc), revenues declined 5% in the fourth quarter. The dismal top line reflected a weak performance in HPQ’s Personal Systems (“PS”) and Printers segments.

HP Inc. Price, Consensus and EPS Surprise

HP Inc. price-consensus-eps-surprise-chart | HP Inc. Quote

Quarter in Detail

PS revenues (68% of net revenues) came in at $9.4 billion, which was 8% lower than the year-ago quarter’s figure (7% down at cc). Our estimate for PS segment revenue was pegged at $9.08 billion.

HP’s total PC units sold were flat on a year-over-year basis, with 9% growth in Consumer PS shipments, while Commercial PS units sold declined 6% year over year. Revenues from the Consumer PS and Commercial PS segments registered a year-over-year drop of 1% and 11%, respectively.

The printing business’ revenues (32% of net revenues) decreased 3% year over year (down 2% at cc) to $4.4 billion, mainly due to lower Consumer Printing and Commercial Printing revenues, partially offset by an improvement in Supplies sales. Our estimate for Printing segment revenue was pegged at $4.6 billion.

Consumer Printing net revenues were down 21%, and Commercial Printing net revenues decreased 4%. Supplies net revenues were up 3% (up 4% in constant currency). Total hardware units declined 19% overall.

Region-wise, in constant currency, the Americas declined 13%, the EMEA fell 12% and the APJ decreased 9%.

Operating Results

Segment-wise, PS’ non-GAAP operating margin expanded 250 basis points (bps) to 6.7% due to lower commodity and logistics expenses and efficient cost management. This was partially offset by an unfavorable product mix and forex.

The Printing division’s non-GAAP operating margin shrunk 80 bps to 18.9%.

HP’s overall non-GAAP operating margin from continuing operations of 10.3% expanded 170 bps year over year.

Balance Sheet and Cash Flow

HP ended the fiscal fourth quarter with cash, cash equivalents and restricted cash of $3.23 billion, down from $1.7 billion at the end of the previous quarter.

During the quarter, HPQ generated $1.98 billion worth of cash for operational activities and $1.87 billion in free cash flow. During full fiscal 2023, the company generated operating cash flow and free cash flow of $3.57 billion and $3.09 billion, respectively.

HP returned $259 million to its shareholders in the form of cash dividends in the fiscal fourth quarter and $1.04 billion during fiscal 2023. In the fourth quarter, HPQ did not repurchase any shares. However, it bought back $100 million of common stock in fiscal 2023.

Guidance

HP initiated guidance for the first quarter while reiterating the fiscal 2024 outlook. For the first quarter of fiscal 2024, the company estimates non-GAAP earnings per share (EPS) between 76 cents and 86 cents (midpoint 81 cents). The midpoint of the first-quarter earnings guidance fell short of the Zacks Consensus Estimate of 85 cents.

For fiscal 2024, the company continues to project non-GAAP EPS between $3.25 and $3.65 (midpoint $3.45). The midpoint of the fiscal 2024 earnings guidance range is in line with the consensus mark. HPQ also reaffirmed its free cash flow guidance of $3.1-$3.6 billion for fiscal 2024.

Zacks Rank & Stocks to Consider

HP currently carries a Zacks Rank #3 (Hold). Shares of HPQ have declined 0.5% year to date.

Some better-ranked stocks from the broader technology sector are Intel Corporation INTC, Aspen Technology, Inc. AZPN and Datadog, Inc. DDOG. Intel currently sports a Zacks Rank #1 (Strong Buy), while Aspen and Datadog each carry a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Intel’s fourth-quarter 2023 earnings has moved north 10 cents to 43 cents per share in the past 30 days. The consensus estimate for 2023 earnings has increased 30 cents to 91 cents in the past 30 days.

Intel's earnings beat the Zacks Consensus Estimate in three of the trailing four quarters and missed once, delivering an average surprise of 136.3%. Shares of INTC have rallied 64.9% year to date.

The Zacks Consensus Estimate for Aspen's second-quarter fiscal 2024 earnings has moved north 14 cents to $1.49 per share in the past 30 days. The consensus estimate for fiscal 2024 earnings has increased 5 cents to $6.63 per share in the past 30 days.

Aspen's earnings missed the Zacks Consensus Estimate in each of the trailing four quarters, delivering an average negative surprise of 32.3%. Shares of AZPN have dropped 10.4% year to date.

The Zacks Consensus Estimate for Datadog's fourth-quarter 2023 earnings has moved north 9 cents to 43 cents per share in the past 30 days. The consensus estimate for 2023 earnings has increased 19 cents to $1.51 per share in the past 30 days.

DDOG’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, delivering an average surprise of 28.6%. Datadog shares have rallied 52.3% year to date.

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