HP Falls as Earnings Forecasts Fail to Offset PC Slump

HP's Outlook Is in Line...But There Are Problems
  • Revenue declines in all segments amid computer industry slump
  • Company to speed job cuts to save costs in challenging market

HP Inc. fell after offering little insight into how it will overcome the globally depressed market for computers and printers as it released earnings that were just in line with analysts’ estimates.

In its first full quarterly report as a standalone company, HP executives spoke of difficult markets and said job cuts announced earlier need to be accelerated. The stock declined 4.4 percent to $10.34 at the close Thursday in New York, making it the third-worst performer in the Standard & Poor’s 500 Index. The shares have dropped 13 percent this year.

HP Chief Executive Officer Dion Weisler is trying to navigate the challenges of shepherding his new company as demand wanes for key hardware products. While last November’s separation from Hewlett Packard Enterprise Co. is supposed to give him the flexibility and control to pursue customers, the company still needs to find ways to bolster profit and sales.

“From a fundamental trend perspective nothing is surprising,” said Anand Srinivasan, a technology analyst at Bloomberg Intelligence. “It’s all negative, it’s all bad and from an expectations standpoint they met the minimum hurdle.”

Profit before certain items in the second quarter, which ends in April, will be 35 cents to 40 cents a share, HP said Wednesday in a statement. That compares with an average estimate of 39 cents, according to data compiled by Bloomberg.

Job Cuts

In an interview, Weisler said the company will need to accelerate a plan announced last year to eliminate about 3,000 positions over three years. Instead, the reductions will be completed this fiscal year.

“We’re operating in markets that are challenged,” Weisler said. “We’re operating in markets that are consolidating in many cases -- and that we see opportunity to outpace our competitors. We see opportunity to take costs out of our system.”

HP, the smaller of the two units of the former company based on market valuation, said sales during the quarter ended in January were $12.2 billion, meeting the average estimate. Adjusted profit was 36 cents a share, hitting the number projected by analysts.

For the fiscal year, the company expects adjusted earnings of $1.59 to $1.69 a share, compared with estimates of $1.60 and in line with the company’s November forecast.

PC Market

HP is confronted with a changing landscape in the struggling PC industry. Vaio Corp., the personal computer maker spun off from Sony Corp. in 2014, is closing in on a three-way merger with rivals to create a producer that can dominate Japan and weather a shrinking global market. Dell Inc., another key competitor in personal computers, is set to add more storage products with a $67 billion merger with EMC Corp.

Sales in HP’s Personal Systems, which include desktops and laptops, fell 13 percent from a year earlier while revenue from the printer unit declined 17 percent.

The printer industry also is going through difficulties as businesses and consumers opt more for digital devices to access information instead of relying on paper documents. Lexmark International Inc., which said this week it’s trimming staff over the next year, is exploring strategic alternatives that could include a partial sale to some of its rivals.

“We’ve got to get our cost structure, our non-revenue generating cost structure down to operate in what we’re calling the new normal,” Chief Financial Officer Catherine Lesjak said during a call with analysts. “This is the environment in which we have to win and succeed.”

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