HP CEO Enrique Lores on massive earnings beat

Yahoo Finance's Brian Sozzi talks with HP Inc. CEO Enrique Lores about the company's recent earnings beat, the impact of the coronavirus on business, and the increase in demand as the economy reopens and people return to work.

Video Transcript

BRIAN SOZZI: So Enrique, HP really, I think, surprised a lot of folks on the street. You came out, you beat by $0.26. As you take a step back, where do you think the world of doing work is at this point in the pandemic?

ENRIQUE LORES: I think what these results show is that our strategy is working, Brian, and we are really using leverage and the impact of the pandemic to accelerate our strategies. What we are seeing is very strong demand for our products in the business space, in the printing space, especially at home, and this is what has driven the results we have posted today.

BRIAN SOZZI: Are you seeing green shoots in the commercial side of your business?

ENRIQUE LORES: We are starting to see some improvement on the commercial side. Some companies are starting to reopen. They are starting to reinvest. But I would say at this point it's very modest, very moderate. What is really driving our business at this point is the strength of the consumer business. This is really what is driving-- helping to drive the results that you have seen today.

BRIAN SOZZI: What do you think the pace of the recovery will be in that commercial side of the business? Does desktop come-- really return back to growth quicker than printers? How do you-- how do you view it?

ENRIQUE LORES: I think the return-- the pace of the recovery is going to be driven by the pace of the vaccines and how fast people will be getting the vaccines and therefore how fast offices will be opening. We think that some of the changes we have seen, though, are going to be permanent.

You mentioned the change of mix between notebooks and desktops. We think this is going to continue. We also think people will work in different ways, and hybrid is going to be how work will be defined in the future. We all have learned that we don't need our employees to come five days per week to the office. They can work two days from home, three days in the office. And all this is going to continue to open opportunities for us going forward.

BRIAN SOZZI: I wouldn't mind that, you know, two days, three days working from home, Enrique. I'm not getting any younger, you know. I got to save some wear and tear on my body, so that's a good thing.

So you don't think notebook sales will-- will they slow as we go back to the office? Doesn't sound as if you're in that camp.

ENRIQUE LORES: We think that the overall PC category, especially notebooks, are going to continue to be very strong even once we go back to the office. We think that changes in how we live, how we communicate, how we work, how we play are going to continue. PCs have become essential, and we think this is going to continue to drive the momentum in the notebook category going forward.

BRIAN SOZZI: What type of computers are people buying right now?

ENRIQUE LORES: They are buying almost any type of PC that is mobile. We are seeing high growth in premium categories. We are seeing tremendous growth in gaming because entertainment is a key part of what people do today. And we are seeing that gaming category really growing across almost every country in the world. And this is why the announcement we made yesterday with the acquisition of HyperX, which is a leading provider of headsets in the gaming space, is really important for us because talks about the growth opportunity that we have in gaming beyond PCs.

BRIAN SOZZI: How big-- after that acquisition of HyperX, how big is your gaming business, and what are your plans there?

ENRIQUE LORES: Our plans are to continue to grow that category, both on the product side but especially on the peripheral side. If you compare how much money gamers spend in peripherals versus a normal person, it is 16 times more money. So this talks about the opportunity in peripherals where there are headsets, microphones, mice, keyboards. This is a category that will be growing, and this is why we bought HyperX. We can help them to grow faster by leveraging our geographical presence and leveraging our retail presence.

BRIAN SOZZI: Well, I want to go back to the notebooks just given the growth you have seen there. How does the chip shortage impact your business? You do-- you rely on Intel. You rely on AMD. And there's not a lot of chips to go around right now.

ENRIQUE LORES: Well, what the shortages means is that we could do even better than what we have done this quarter. But let me share you a data point that I think will help to understand what the situation is.

If we look at the projection that we have now for market size for 2021 and we compare to the projection for '21 that we had 18 months ago before the pandemic started, the market is going to be 45% bigger. It is very hard for component suppliers to respond to this type of increase, and this is what is driving the shortages, not manufacturing issues. It's really driven by how strong the demand we see for products in the PC category but actually also for products in the printer category.

BRIAN SOZZI: How severe-- how severe do you think the shortage will be? Are you talking-- are we at that point where I will walk into a store soon and I just can't find a notebook computer?

ENRIQUE LORES: No. We provided very strong guidance for Q2 and for the rest of the year, and this shows that even where there-- even if there will be shortages, we are going to continue to grow. We are going to continue to be able to meet majority of customer needs.

What this means, though, is we could do even better. So if components get-- component shortages are reduced, our performance will be even better than that. But we still see a very strong PC and printer business in the coming quarters.

BRIAN SOZZI: I want to mention that guidance. So your full-year fiscal guidance came out. It's good that companies such as yourself are back to even providing that full-year guidance. So $3.15 a share to $3.25 a share. Consensus was about $2.63, so a pretty big gap there.

In that guidance, how much stock are you buying back? You bought back $1.4 billion in the most recent quarter. What's your total firepower left?

ENRIQUE LORES: Well, what we have said is that are going to continue to buy back shares during the coming quarters, at least $1 billion per quarter. But the majority of that increase is driven by the improvement in profitability that we will be driving. This is what has helped us or is supporting us to provide the guidance that we have provided today. And again, it's driven by the demand that we are seeing for our portfolio.

BRIAN SOZZI: All right, we'll leave it there. HP CEO Enrique Lores, always good to see you. Stay safe, and we'll talk to you soon.

ENRIQUE LORES: Thank you, Brian. Great to see you.