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HP (HPQ) to Post Q2 Earnings: What's in Store for the Stock?

Zacks Equity Research

HP Inc. HPQ is set to report second-quarter fiscal 2019 results on May 23.

In the trailing four quarters, the company’s results surpassed the Zacks Consensus Estimate once and came in line on three other occasions, the average positive surprise being 1%.

Looking back at the last reported quarter, the company’s non-GAAP earnings of 52 cents per share met the Zacks Consensus Estimate. Meanwhile, the metric improved 8% on a year-over-year basis.

However, HP’s total revenues of $14.7 billion missed the Zacks Consensus Estimate of $15.1 billion but inched merely 1% up year over year.

Guidance and Estimates for Q2

For the fiscal second quarter, HP predicts non-GAAP earnings between 50 and 53 cents.

The Zacks Consensus Estimate for the metric is pegged at 51 cents, indicating an increase of 6.3% from the year-ago reported figure.

For the fiscal second quarter, the Zacks Consensus Estimate for revenues stands at $14.06 billion, implying a rise of 0.4% from the prior-year reported number while a dip of 4%, sequentially.

HP Inc. Price and EPS Surprise

HP Inc. Price and EPS Surprise

HP Inc. price-eps-surprise | HP Inc. Quote

So, let’s see how things are shaping up prior to the upcoming announcement.

Factors at Play

HP’s results for the fiscal second quarter are likely to be under persistent pressure due to weakness in both its personal systems and printing businesses.

The company is facing challenges in the Personal Systems business due to Intel's INTC CPU shortages and soft consumer demand in the market. The ongoing shift toward tablets and smartphones is a concern for the company.

According to Gartner and IDC reports, PC Market was relentlessly sluggish in first-quarter 2019. Per Gartner, while HP’s desktop shipments increased in the quarter, its mobile PC shipments were flat. Again across the EMEA belt, though HP recorded a slight rise in shipments, it experienced a decline in all other regions. IDC added that the company witnessed a year-over-year dip of 0.8% in the first quarter.

Further, rising macro uncertainties and price sensitivity among customers are undermining the company’s high-margin Printing business. Change in customer purchasing behavior with more commercial customers buying items online, is an overhang on HP’s Supplies share.

Additionally, given the high inventory and pricing issues, the company expects sales for the Printing segment to fall over the rest of the year. This makes us anxious about the company’s upcoming quarterly results.

However, the printing segment is likely to be driven by growth in hardware revenues, increase in unit share and progress in contractual offering.

Additionally, the company’s focus on product innovation and differentiation is helping it stay ahead of Dell DELL and Apple AAPL in the PC market. Notably, per IDC's latest report, in first-quarter 2019 PC shipment, HP held the first spot among the worldwide PC vendors, driven particularly by double-digit growth in Japan.

Solid growth in revenues from Notebooks and workstations is likely to be a steady tailwind in the soon-to-be reported quarter.

HP carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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