HP Inc. Shows Independence With Cost Controls to Boost Profits

  • Revenue declines 11 percent in second quarter on printer sales
  • CEO says company ‘navigating the heat’ in struggling markets

HP Inc., two quarters into its existence as a standalone company, is showing signs of improvement by cutting costs even as sales of personal computers and printers continue to fall.

Despite revenue declines of 10 percent or more in key units, the company Wednesday reported gains in adjusted operating margin and greater efforts to control costs during the fiscal second quarter. HP also gave a profit forecast for the current quarter that may meet some analysts’ estimates.

HP Chief Executive Officer Dion Weisler is pushing ahead with his plan to stay lean in the printer and PC markets that are in long-term decline. The company said it’s on pace reduce about 3,000 jobs this year. Expenses fell 10 percent in the fiscal second quarter and adjusted operating margins were 7.8 percent compared with 7.5 percent a year earlier.

“The cost containment has been better than expected,” said Bill Kreher, an analyst at Edward Jones & Co. “Longer term, they’re going to have to really hang their hat on that operating profile.”

Profit before certain items is projected to be 37 cents to 40 cents a share in the fiscal third quarter, which ends in July, HP said in a statement. That compares with analysts’ average estimate of 40 cents, according to data compiled by Bloomberg. For the fiscal year, the company forecast adjusted earnings of $1.59 to $1.65 a share, compared with estimates of $1.59.

“We’re navigating the heat in the market,” Weisler said in an interview. “What this company does really well -- is it knows how to run a business both in up markets and in down markets.”

Shares gained about 1 percent in extended trading in New York after closing at $12.20. The stock has gained 3 percent this year.

HP, the smaller of the two units based on market valuation from the November split with Hewlett Packard Enterprise, said sales during the quarter ended in April declined 11 percent to $11.6 billion, missing the average estimate of $11.7 billion. Adjusted profit was 41 cents a share, compared with 38 cents projected by analysts.

PCs, Printers

Global PC shipments fell to their lowest quarterly total since 2007, Gartner Inc. reported in April. Sales in HP’s Personal Systems unit, which includes desktops and laptops, fell 9.9 percent from a year earlier -- with the segment’s consumer revenue decreasing 16 percent. Revenue in the printer division declined 16 percent.

The challenges in the printer industry continue with sagging sales and consolidation. Last month, Lexmark International Inc., a computer-printer maker, agreed to be acquired by an investment consortium led by Apex Technology Co. and PAG Asia Capital in a transaction that valued the company at $3.6 billion. Also, last month, Canon Inc. reported a decline in sales.

Still, HP has said it’s investing for the future. Earlier this month, the company unveiled two 3-D printers aimed at manufacturing customers. HP is working with businesses such as BMW AG, Siemens AG and Nike Inc. as co-developers of the technology, which lets customers craft objects such as machine parts.

Hewlett Packard Enterprise reported earnings Tuesday, although the results were overshadowed by its announcement that it would spin off and merge its big services unit with Computer Sciences Corp. in a deal valued at $8.5 billion for HPE shareholders.

During a conference call with analysts, Weisler rejected the idea that he would separate one of his assets from his company, saying he’s happy with both units despite industry headwinds.

“We don’t stick our head in the sand here,” he said. “We understand what’s going on in the market.”

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