HP: Printing, Ink, Continues to Bolster Revenue

655 Ink Advantage cartridgeLast Thursday, May 22nd, Hewlett-Packard reported results for its second-quarter 2014, with total revenue for the quarter $27.3 billion, down 1 percent versus second-quarter 2013 (see story here). The company also announced that it expects up to another 16,000 in employee layoffs, bringing the total number of layoffs previously announced under its 2012 restructuring program to 50,000. For HP’s printing business, however, there was some good news, as reported by HP CEO Meg Whitman and HP CFO Cathie Lesjak during a conference call held May 22nd.

First, according to Whitman, HP’s printing group delivered a solid performance in the second quarter: “Overall results in Q2 were driven by solid performance in Printing, Networking, and Personal Systems as well as disciplined cost management across all of our businesses.”

According to Whitman, for the fourth consecutive quarter, HP’s printing business once again “outperformed the market” with unit-placement growth, and HP also held its gain in market share in every major printing category and regions on a year-over-year basis, all while delivering another quarter of profitability.

HP’s Personal Systems (consumer and commercial PC) group also delivered revenue up 7 percent over the prior year’s quarter. Overall, Whitman says HP is seeing a slowing market contraction and signs of stabilization particularly in commercial PCs. However, HP’s Enterprise Group’s revenue was down 2 percent versus second-quarter 2013, and software revenue for the quarter was flat.

Ink Continues to Bolster Revenue

According to HP’s Cathie Lesjak, EVP and CFO, “…in printing we saw very strong profitability and further traction in key initiatives like Ink in the Office and Ink Advantage as well as in graphics (printing).”

The downside was on the toner side of things, with Lesjak reporting weak toner-cartridge sales, as HP’s laser hardware printer/MFP installed base remains under pressure. (Lesjak says HP is focused on placing value-added units to support the installed base throughout the rest of 2014.) Commercial-printer hardware revenue was also relatively flat at $1.4 billion, down 1 percent  year-over-year,

Altogether, HP ‘s total printing revenue was $5.8 billion, down 4 percent year-over-year, driven by a decline in supplies revenue primarily related to lower toner-cartridge sales. Total hardware unit shipments grew 1 percent year-over-year.

While consumer-printer hardware revenue was relatively flat at $566 million for the second quarter, up 1 percent year-over-year, according to Leskjak, HP’s office-oriented inkjets (Ink in the Office) and Ink Advantage units’ revenue each grew double digits year-over-year, and HP grew share in both ink and laser hardware units. HP Ink Advantage printers and All-in-Ones, which HP launched in 2012 (see story here) consist of color inkjet printers and All-in-Ones with lower-price and/or higher-capacity ink cartridges that can print more pages, and/or users can subscribe to an optional ink-cartridge program, called HP Instant Ink, which can save users up to 50 percent on ink costs (for instance, with the Frequent Printing plan, for $9.99 per month, users can print up 300 black or color pages).

HP’s printer-supplies revenue for the second quarter, however, was $3.9 billion, down 6 percent over the prior-year period, but made up 66.3 percent of printer revenue. However, ink revenue continues to be a significant part of HP’s profitability, with Lesjak noting, “Although the mix was down a point year-over-year, ink is the greater part of the supplies mix, which helps offset the negative impact of lower supplies and overall printing profitability.

Total  operating profit for the printing business in the second quarter was $1.1 billion or 19.5 percent of revenue, up 3.6 points year-over-year. Lesjak says HP plans to invest some of these profits into value-added hardware units.

Our Take

This second-quarter snapshot-look at HP’s financial performance reveals that printing – and ink- continues to be a stalwart revenue source for HP, and the double-digit revenue growth for HP’s office inkjets and Ink Advantage inkjets seems to indicate that this will continue for some time.

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