It has been about a month since the last earnings report for HP (HPQ). Shares have added about 12.3% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is HP due for a pullback? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
HP Q1 Earnings & Revenues Top Estimates, Up Y/Y
HP reported better-than-expected first-quarter fiscal 2021 results on solid PC demand amid the COVID-19 pandemic-led remote-working and online-learning wave. However, weakness in commercial printer sales partially offset these benefits.
HP delivered fiscal first-quarter non-GAAP earnings from continuing operations of 92 cents per share, up from the year-ago quarter’s 65 cents. Moreover, quarterly earnings surpassed the Zacks Consensus Estimate of 65 cents per share as well as management’s guided range of 64-70 cents.
HP’s net revenues grew 7% year over year to $15.6 billion and beat the Zacks Consensus Estimate of $15.24 billion. In constant currency (cc), revenues increased 6.6%.
Quarter in Detail
Personal Systems revenues (68% of net revenues) were $10.6 billion, up 7% year on year (up 6% in cc). Further, consumer revenues jumped 34%, while commercial sales declined 6%. The company noted that it shipped more than 18 million units during the fiscal first quarter.
HP’s total units sold climbed 15% from the year-ago quarter. Notebooks registered a 33% jump, while desktop units dropped 23%, year on year. While notebook revenues increased 23% year over year, desktop and workstation sales were down 18% and 36%, respectively.
Printing business revenues (32% of net revenues) went up 7% year over year (up7% in CC) to $5 billion. HP’s total hardware units sold increased 16%. Consumer Hardware units and revenues grew 18% and 55%, respectively. Supplies revenues rose 3%. Further, while Commercial Hardware units were flat, revenues slid 11% on a year-over-year basis.
Region wise, at cc, revenues from Americas (46% of net revenues) and Europe, Middle East and Africa (33%) increased 17% and 3%, respectively. Meanwhile, revenues from Asia-Pacific (21%) slid 5%.
Operating Results
Segment wise, Personal Systems operating margin expanded 40 basis points (bps) to 7.1%. Moreover, printing operating margin expanded 380 bps to 19.8% on higher revenues.
Meanwhile, the company’s overall non-GAAP operating margin from continuing operations of 11.1% advanced 150 bps, year on year.
Balance Sheet and Cash Flow
HP ended the fiscal first quarter with cash and cash equivalents of $4.16 billion compared with the $4.86 billion recorded in the prior quarter.
During the reported quarter, the company generated operating cash flows of $1.02 billion and $0.9 billion in free cash flow.
HP returned $1.63 billion to its shareholders in the form of stock repurchases ($1.38 billion) and cash dividends ($250 million) during the fiscal first quarter. During the first quarter, HP returned 179% of its free cash flows.
Guidance
For second-quarter fiscal 2021, HP estimates non-GAAP earnings between 84 cents and 90 cents.
HP anticipates solid demand for personal systems during the fiscal second quarter on the rising working-and-learning-from-home wave. Nevertheless, the company expects that the industry-wide component supply constraints might dampen its ability to meet demand.
For the printing segment, HP projects robust demand for home printers, but expects continued economic pressure in commercial printing.
During the first-quarter fiscal 2021 earnings conference call, HP noted it estimates to return approximately $1 billion per quarter at minimum to shareholders in the near term.
For fiscal 2021, the company projects non-GAAP earnings per share between $3.15 and $3.25.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 47.98% due to these changes.
VGM Scores
At this time, HP has a great Growth Score of A, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren’t focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, HP has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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