HP Inc. Q3 2024 Earnings Report

HP Inc. (NYSE:HPQ) reported a 2% year-over-year revenue increase in its third-quarter 2024 earnings, indicating the first revenue growth in nine quarters, majorly driven by its Personal Systems segment. Despite this, the company’s non-GAAP operating profit fell by 7%, and non-GAAP EPS was within the forecast but fell short of expectations.

HP is accelerating its Future Ready cost-savings plan, targeting significant cost reductions by the end of the fiscal year. The company continues to invest in growth sectors like AI PCs and industrial printing and is committed to returning capital to shareholders.

Key Takeaways

• HP’s Q3 revenue growth was supported by the Personal Systems segment, although print market recovery was sluggish.
• Non-GAAP operating profit dipped by 7%, with non-GAAP EPS aligning with forecasts, yet falling below expectations.
• The Future Ready cost-savings program is being expedited to achieve 80% of its $1.6 billion target by fiscal year-end.
• Ongoing investments focus on AI PCs and industrial printing; Cybercore Technologies was acquired to enhance security expertise.
• A $50 million award from the US Department of Commerce will assist HP’s semiconductor fab expansion.
• HP maintains plans for investments in valuable sectors while accelerating cost reduction efforts due to competitive pressures.

Company Outlook

• For Q4, HP anticipates sequential Personal Systems revenue growth in the low to mid-single digits.
• Print revenue is expected to show similar sequential growth due to seasonal trends.
• Non-GAAP EPS projection for fiscal 2024 is narrowed to $3.35 – $3.45, with free cash flow projected between $3.1 billion and $3.6 billion.

Bearish Highlights

• The print segment saw a slower than expected recovery, particularly due to aggressive pricing challenges in China.
• Declines in non-GAAP operating profit and EPS indicate competitive pressures.

Bullish Highlights

• Approximately $870 million has been returned to shareholders, partially through buybacks and dividends.
• HP anticipates achieving $1.3 billion in cumulative savings by fiscal year-end 2024.
• Sales for consumer AI PCs slightly exceed expectations, with next-gen AI PCs recently launched.

Misses

• Although meeting the lower end of the guidance, non-GAAP EPS fell short of market expectations.
• Performance in the print segment was weaker than anticipated due to a slow recovery.

Q&A Highlights

• Executives express confidence in nearing targeted print margins.
• Positive developments in home printing; reduced declines in the office market.
• Ongoing aging of the installed base is projected to support a commercial PC market refresh cycle.
• HP has not noted customer delays in anticipation of new Intel processor launches, indicating steady commercial momentum.

In summary, HP Inc. demonstrates growth after an extended period, largely driven by its Personal Systems segment. The firm addresses the slower recovery in the print market by expediting cost-saving measures while focusing on innovation and growth sectors. Despite facing competitive pressures, HP is committed to returning shareholder value and is optimistic about the commercial PC market’s potential, catalyzed by an aging installed base and new technology rollouts.

InvestingPro Insights

HP Inc. (HPQ) has exhibited resilience in a challenging market, as highlighted by its earnings report. HPQ carries a market capitalization of about $34.01 billion, with a P/E ratio of 11.69, suggesting a potentially attractive valuation. Its dividend yield stands at 3.17%, noteworthy for income-driven investors, especially after raising dividends for seven consecutive years.

InvestingPro Tips

1. HPQ’s low P/E ratio compared to its near-term earnings growth signals potential undervaluation.
2. Despite weak gross profit margins of 22.11%, HPQ maintains strong free cash flow yield, supporting investments in growth areas such as AI PCs and industrial printing, while continuing to return capital to shareholders.

For a more comprehensive analysis, additional InvestingPro Tips are available at InvestingPro for insights regarding HPQ’s financial health and market standing.

Full transcript – HP Inc (HPQ) Q3 2024

Operator

Hello. Good day, everyone, and welcome to the Third Quarter 2024 HP Inc. Earnings Conference Call. My name is Desiree, and I will be your conference moderator for today’s call. At this time, all participants will be on listen-only mode. We will be facilitating a question-and-answer session towards the end of the conference. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes.

Orit Keinan-Nahon

Good afternoon, everyone, and welcome to HP’s Third Quarter 2024 Earnings conference Call. Joining me today are Enrique Lores, HP’s President and Chief Executive Officer; Karen Parkhill, HP’s Chief Financial Officer; and Tim Brown, who is the Interim CFO. Before handing the call over to Enrique, let me remind you that today’s presentation will contain forward-looking statements.

Enrique Lores

Thank you, Orit, and thank you all for joining today’s call. I’m pleased to report that the company returned to revenue growth for the first time in nine quarters, up 2% year-over-year, driven by strong performance in Personal Systems. However, the print market recovery was slower than expected, impacting print revenue. Our non-GAAP operating profit decreased by 7% while non-GAAP EPS was within our previous outlook range but below expectations. We see an immediate opportunity to drive structural cost savings and are expediting our Future Ready plan targeting an 80% run-rate by year’s end.

Karen Parkhill

Thank you, Enrique. I’m excited to join HP and lead our financial strategy. Our revenue was up nominally 2% year-over-year, which was encouraging despite challenges in print. Our Free Cash Flow for the quarter was $1.3 billion, and we returned approximately $870 million to shareholders.

Enrique Lores

The outlook for Q4 is cautiously optimistic. We anticipate revenue growth in Personal Systems and print, driven by typical seasonal strengths. Despite the competitive pricing environment, we believe our investments in AI and our cost-saving initiatives will yield positive results moving forward.