HP Inc. Revenue Declines; Full-Year Guidance Cut--Update

By Don Clark and Lisa Beilfuss 

HP Inc. posted a steeper-than-expected sales drop in its most recent quarter, the latest sign of tepid demand for personal computers and printers.

The company, one of two created last fall by the breakup of Hewlett-Packard Co., reported that net income was 38% lower than the prior quarter and issued a forecast for the fiscal year that was lower than some analysts expected.

But the Palo Alto, Calif., company topped its own guidance for quarterly profit and said it is hitting its financial targets. "Across all the areas of the business we are doing exactly what we said we would do," Dion Weisler, HP's chief executive, said in an interview.

The company's stock price, after dipping initially after hours, rebounded to rise 1.3%.

HP's earnings release came a day after its former sister operations, now the separate company Hewlett Packard Enterprise Co., said it would merge most of its technology services operations with those of Computer Sciences Corp.

Where HP Enterprise focuses mainly on hardware and software for data centers, Mr. Weisler's company's business is tied to the slower-growing markets for PCs and printers. He acknowledged that demand for both products has been weak, but said the company continues to target niches where sales are growing and HP can boost its market share.

In addition, Mr. Weisler said, the company has avoided competing for sales in areas where profit margins are low, such as low-cost PCs.

"We are taking share where we choose to play," he said. "We are also being careful about what not to do."

The company said revenue in its personal systems business slid 10% from a year earlier, dragged down by a 16% decline in consumer sales and a 7% fall in commercial revenue. On its printer side, revenue decreased 16%.

Over all, HP reported net income of $629 million, or 36 cents a share, down from $1.01 billion, or 55 cents a share, a year earlier. Adjusted to exclude discontinued operations and other items, per-share profit rose to 41 cents from 39 cents, above the company's forecast for 35 cents to 40 cents.

Revenue fell 11% to $11.59 billion, or 5% excluding adverse currency rates. Analysts had projected 38 cents in adjusted earnings per share on $11.72 billion in revenue, according to Thomson Reuters.

For the fiscal year ending in October, HP projected adjusted per-share earnings of $1.59 to $1.65, compared with a prior range of $1.59 to $1.69. The change reduces the midpoint of HP's forecast from $1.64 to $1.62, compared with average estimate of $1.59.

Bill Kreher, an analyst at Edward Jones, called the projection surprising, since the company topped profit expectations in the second quarter. "The guidance seems a bit underwhelming," he said.

For the current quarter, the company expects to post 37 cents to 40 cents in adjusted earnings per share. Analysts' average projection was 40 cents.

Over the long term, Mr. Weisler is betting partly on a rebound in customer demand and partly on innovative new products. New offerings include the company's first line of 3-D printers, which were formally unveiled last week.

Write to Don Clark at [e-mail] and Lisa Beilfuss at [e-mail]

(END) Dow Jones Newswires

May 25, 2016 19:24 ET (23:24 GMT)

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