Is HP Going Down?

Hewlett-Packard (HPQ) announced first quarter ended January 31, 2016 net revenue of $12.2 billion, slightly below $12.3 billion sequentially in fourth quarter of 2015 and down 12 percent year-over-year from $13.9 billion during the same period last year.

HP declared first quarter of 2016 non-GAAP net earnings from ongoing operations of $0.6 billion or $0.36 per diluted share, down 16 percent year-over-year from $0.8 billion or $0.41 per diluted share in first quarter of 2015 and within the company’s earlier stated earnings outlook of $0.33 to $0.38.
Going forward, HP estimates non-GAAP diluted net EPS from ongoing operations in the range of $0.35 to $0.40.

The key computing technology company reported continued year-over-year decline in both its top and bottom lines primarily due to ongoing reduction in company sales for the quarter, particularly impacted by the expanding acceptance of mobile devices quickly replacing personal computers.

Some strength

HP has successfully grown its top line sequentially both as reported and on constant currency basis, mainly driven by significant cost control initiatives being implemented by the company all through its operations and in line with the continuing changing trend of rapidly expanding mobile devices, increasingly replacing personal computers.

Further, regional revenue trends across Americas, EMEA and Asia Pacific except the United States all have shown healthy sequential growth after continuous declines witnessed over several quarters which can be attributed to HP’s continuing focus on minimizing the overall business costs while delivering superior innovations that are new and amazing for its key partners and customers.

The notable and continuing cost-optimization initiatives of HP all through its core operations are believed to develop solid cash position for the company, encouraging it to make future growth investments while returning a majority of the invested capital to its key stakeholders in form of dividends and share repurchases.

Diversification helps

HP has an extremely well-diversified revenue source with top line growth primarily contributed by notebooks, desktops and print supplies each contributing 35%, 21% and 25% respectively. Further, total revenue is contributed in the pattern of 46%, 34% and 20% achieved from Americas, EMEA and APJ. In addition, HP delivered a total of $1.0 billion of adjusted operating profit for the quarter with printing and personal systems business segments each contributing 77% and 23% respectively of total bottom line and delivering 17.0% and 3.1% respectively of key operating margins.

The computing technology major has hugely minimized its total debt from $8.8 billion in fourth quarter of 2015 to just $6.7 billion in first quarter of 2016 which is mainly attributed to superior cost control executed all through the company operations and converging with the company’s commitment to deliver attractive shareholder returns in form of dividends and through strategic share repurchases.

The notably diversified revenue sources of HP both by products and regions still make the stock an attractive long-term investment option which is expected to deliver significant returns over the longer term and further, supported by the company’s ongoing cost-optimization and cash growth efforts.

Importantly, HP has executed $797 million worth of strategic stock repurchase plan by repurchasing nearly 67.0 million shares and thus, offering a total of $221 million or $0.124 per share as dividend payments which is in line with its continued commitment to deliver attractive shareholder returns.


Overall, the investors are advised to “Hold” their position in HP Inc. considering the company’s significant long-term growth prospects but weaker financial position with huge total debt of $6.73 billion against weaker total cash position of $3.69 billion only, restricting the company to make future growth investments. The PEG ratio of -5.80 indicate no growth but decline compared to solid industry’s growth average of 1.09.
Published on Apr 5, 2016
By Vinay Singh

Copyrighted 2016. Content published with author's permission.

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