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Why HP Stock Tumbled Today

Timothy Green, The Motley Fool

What happened

Shares of HP (NYSE: HPQ) slumped on Thursday after the PC and printer company reported its fiscal first-quarter results. HP missed analyst estimates for revenue, with the company blaming unexpected weakness in its high-margin printing supplies business. The stock was down about 16.3% at 12:15 p.m. EST.

So what

HP reported first-quarter revenue of $14.7 billion, up 1.3% year over year but $150 million below the average analyst estimate. Personal systems revenue was up 2.3% to $9.66 billion, while printing revenue was down 0.4% to $5.06 billion.

An HP printer.

Image source: HP Inc.

HP CEO Dion Weisler said that "our supplies performance did not meet our expectations this quarter" during the earnings call. A decline in market share and lower pricing were driven by customers increasingly purchasing supplies online. HP has a lower market share online compared to other channels.

Supplies revenue was down 3% year over year in the first quarter, and HP no longer expects supplies revenue to be flat to slightly up in 2019. The company now expects a 3% decline for the year.

Non-GAAP earnings per share came in at $0.52 in the first quarter, up from $0.48 in the prior-year period and in line with analyst expectations.

Now what

HP expects second-quarter non-GAAP EPS between $0.50 and $0.53 and full-year non-GAAP EPS between $2.12 and $2.22. That represents earnings growth of 5% to 10% for the full year.

Printing supplies is a lucrative business for HP, and the company being caught off guard by weaker-than-expected demand no doubt has investors concerned. The printing segment, which includes supplies as well as hardware, generated twice as much earnings before taxes as the personal systems segment in the first quarter on a bit more than half the revenue.

With the most profitable part of HP struggling, it's not surprising that the market punished the stock on Thursday.

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Timothy Green has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.