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HP CEO talks ‘strong commercial demand,’ inflation, and stock valuation

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HP CEO Enrique Lores speaks with Yahoo Finance's Brian Sozzi about earnings, inflation, recessionary risks, and HPQ stock.

Video Transcript

BRIAN SOZZI: Computer and printer giant HP is out with better than expected quarterly earnings. I caught up with HP CEO Enrique Lores to get his outlook for the business as recession fears continue to heat up. Take a listen.

ENRIQUE LORES: I think that there was a very good quarter for us. We proved that we both can deliver on our short-term commitments. The company grew 9% And we overdeliver versus the expectations that the market had both for revenue and EPS. And at the same time, we continue to make progress with our growth portfolio. And we shared that our growth portfolio now represents $5.6 billion of revenue. We had committed to $10 billion at the end of the year. So we are in a very good position to overdeliver versus that goal.

BRIAN SOZZI: Three months ago when you reported, you call the results strong. This quarter you're talking about how they're consistent and solid. Should investors read anything into that? Is that a downgrade on your outlook for the business?

ENRIQUE LORES: No. In fact, we have increased our outlook for the year. We have increased the guidance that we have for the full year. I think consistency is probably the key message because we are in a fairly volatile environment. And even in this volatile environment, we were able to deliver the results that we had committed to. Just look at EPS, we were at the high end of our guide. So again, consistency is important these days. And this is what I would highlight.

BRIAN SOZZI: Is there any differences in terms of performance between the US and Europe?

ENRIQUE LORES: Overall, I would say the performance across the regions has been very consistent to what it was a year ago. Now having spent some time in Europe during the last weeks, I would say that there is more pessimism in Europe about the coming quarters than what we see in the US today. I think it's partly driven by the proximity of the war and the impact that the war could have from an energy perspective. But we haven't seen this in the results yet.

BRIAN SOZZI: Is there anything you're seeing in the US results that would suggest we're headed towards a sharp slowdown economic growth this year?

ENRIQUE LORES: What we are seeing today continues to be a very strong demand from the commercial side. As we were expecting, we have seen some slowdown in consumer. But nothing that tells us that there is going to be a major slowdown coming forward.

BRIAN SOZZI: What do you think is driving that slowdown in consumer? Because in the consumer side of the business, you did see the consumer sales in the personal systems segment, that was down 6%. Printer sales and the consumer business, down 12%. What do you think is causing that pressure?

ENRIQUE LORES: I think first of all is they are very difficult compared with a year ago. Because a year ago really, we saw explosive growth on the commercials, on the consumer side, and now the companies are more difficult. And there could be some impact also from inflation, and where consumers are deciding to spend to spend their money. On the other side, what really is critical for us is how strong the commercial PC business is. This quarter will grow 18%. Now commercial PCs represent about 65% of our total personal system business, which is a very high number, and talks about the strength that we have in that side of the business.

BRIAN SOZZI: Commercial printers, good. And desktops, good. Is that a function of people going back to the office?

ENRIQUE LORES: I think, again, some of it is driven by computers. A year ago, almost no office no company was investing in office equipment, nor desktops, not workstations. Some of this is recovery now, and therefore, we see more growth in that category. But again, the critical thing is how strong the overall commercial demand is for PCs.

BRIAN SOZZI: We recently got, I would say, upbeat news. And we'll take it at this point on lockdowns in China starting to ease. What does that mean for your business?

ENRIQUE LORES: The impact we have seen from the lockdowns has been relatively small because we don't have big factories in the Shanghai area. Of course, there has been some impact because of logistics, because we use this as a logistics center, we have some suppliers that have their factories there, but the impact has been small. Now we welcome the news of the lockdowns being eased because it will help from a demand perspective and it will really help us to even increase the confidence on the outlook that we have.

BRIAN SOZZI: Is there any easing and inflation?

ENRIQUE LORES: Not that we have seen. But we are showing that we can manage the company in this inflationary environment. We continue to see component cost increases year over year. But at the same time, we are able to manage our prices to compensate for those and therefore the strength of our results.

BRIAN SOZZI: Enrique, it's borders on bananas to see where your stock is trading here, just given the past year plus performance under your leadership. I think it's trading about seven times forward earnings of course, a lot of pressure on tech stocks. You bought back $1 billion worth of your stock in the most recent quarter. Do you plan to just keep being an aggressive buyer of your stock here given where it's at?

ENRIQUE LORES: Yeah. We continue to believe that our stock is undervalued. We have been buying aggressively stock for the last two years. And we are going to be delivering on the commitment that we made two years ago of returning at least $16 billion of capital to shareholders via dividends or via share buybacks. Our plan is at least for this year to buy $4 billion of shares. Again, the share is undervalued and we think it's a very good investment for us and for anybody else.

BRIAN SOZZI: Lastly, I didn't get a chance to ask this one when it happened. But Warren Buffett now owns a ton of your stock. Do you run the company any differently when you have someone like that so invested in your future?

ENRIQUE LORES: Well first of all, he and Berkshire are one of the most reputable investors in the world, and we welcome them to HP. But we are going to continue to manage the company as we have done until now. Our focus is in long-term sustainable growth for our shareholders. This is what we have done, and this is what we are going to continue to do going forward.