Revenue Down Slightly for HP Inc.’s Third Quarter, but Net Earnings up 20 Percent

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On August 24th, HP Inc. reported results for its third-quarter 2016, with net revenue of $11.9 billion, down 4 percent versus third-quarter 2015, and net earnings of $0.8 billion, up 20 percent versus third-quarter 2015.

Third-quarter net earnings per share (EPS) was $0.49, up from $0.39 in the prior-year period and above the previously provided outlook of $0.40 to $0.43.

“In Q3, we delivered on our financial commitments and continued to make solid progress in executing against our core, growth and future strategic framework,” commented HP Inc. President and CEO Dion Weisler. “Although the markets remain challenged, we have the innovation and executional rigor needed to continue to take profitable share and invest in the right opportunities to drive long-term success for the company.”

Fiscal 2016 Third-Quarter Segment Results

Personal Systems (PCs) net revenue was flat year-over-year (up 2 percent in constant currency) with a 4.4-percent operating margin. Commercial net revenue decreased 3 percent and Consumer net revenue increased 8 percent. Total units were up 4 percent, with Notebooks units up 12 percent and Desktops units down 6 percent.

Printing net revenue was down 14 percent year-over-year (down 10 percent in constant currency) with a 20.4 percent operating margin. Total hardware units were down 10 percent with Commercial hardware units down 2 percent and Consumer hardware units down 14 percent. Supplies revenue was down 18 percent (down 13 percent in constant currency).

Outlook

For the fiscal 2016 fourth quarter, HP estimates net EPS to be in the range of $0.22 to $0.25 and non-GAAP (Generally Accepted Accounting Principles) diluted net EPS from continuing operations to be in the range of $0.34 to $0.37. Fiscal 2016 fourth quarter non-GAAP diluted net EPS from continuing operations estimates exclude $0.12 per diluted share, primarily related to items such as restructuring and other charges, defined benefit plan settlement charges, non-operating retirement-related credits/(charges), tax indemnifications, net valuation allowances, and separation taxes and adjustments, acquisition and other related charges, and amortization of intangible assets.

For fiscal 2016, HP estimates net EPS to be in the range of $1.46 to $1.49 and non-GAAP diluted net EPS from continuing operations to be in the range of $1.59 to $1.62. Fiscal 2016 non-GAAP diluted net EPS from continuing operations estimates exclude $0.13 per diluted share, primarily related to items such as restructuring and other charges, defined benefit plan settlement charges, non-operating retirement-related credits/(charges), tax indemnifications, net valuation allowances and separation taxes and adjustments, acquisition and other related charges and amortization of intangible assets.

Our Take

HP Revenue Growth First-Quarter 2015 to Third-Quarter 2016

HP revenenue growth

The good news is that this quarter HP reported a significant net-earnings increase, and only a slight revenue decline. As the chart above shows, revenues have recovered significantly from the low of fourth-quarter 2015 – the period when HP completed its split into two companies, HP Inc. and HP Enterprise. The bad news for this quarter was that HP’s printer group saw a significant revenue decline, with net revenue down 14 percent versus the same quarter a year ago.

Looking at more detailed investor information from HP, 63 percent of HP Inc.’s $11.9 billion third-quarter revenue is made up by PCs (notebooks, desktop PCs, workgroup PCs) and 37 percent is made up by printers (printer supplies, commercial printers, consumer printers).

While the decline in printer revenue is troubling, HP continues to state that its printer supplies-revenue trajectory is “still on track to stabilize” by the end of fiscal 2017, and that its new printer-supplies strategy is still on track (see our June 2016 story, “HP Will Invest $285 Million to Reduce Printer-Supplies Inventory, Move to a ‘Pull-User’ Model“). On another positive note, HP’s growth in the commercial graphics-printer segment has continued for the 12th consecutive quarter, with the firm reporting “strong” orders derived from the drupa tradeshow held earlier this year.

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1 Response

  1. September 25, 2016

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