HP (HPQ) falls despite forecasting a steep 2H recovery; BofA remains cautious

Investing.com -- HP Inc (NYSE: HPQ) shares traded almost 5% in pre-open Wednesday after the PC maker posted its lowest revenue for a quarter since early 2020, noting ongoing weakness in demand for personal computers.

For the fiscal second quarter ended in April, HP reported a 21.7% drop in revenue to $12.9 billion. That was below expectations for $13.1B.

Adjusted earnings per share of 80 cents beat expectations for 76 cents a share.

CEO Enrique Lores said: “We are well-positioned to win in our markets and drive long-term sustainable growth as we make continued progress against our Future Ready plan.”

Its PC business reported sales of $8.2B. That is down 29% from the same times last year and short of expectations. Printing revenue of $4.7B was down 5% from the same time last year.

The company’s outlook for the third quarter ending in July forecasts adjusted earnings of 81 cents to 91 cents a share. For the fiscal year 2023 ending in October, it forecast adjusted earnings of $3.30 to $3.50 a share, up from a prior estimate.

Analysts were expecting FQ3 and FY23 EPS of $0.85 and $3.34, respectively.

BofA analyst Wamsi Mohan said the guidance implies a recovery in sales for the second half of the year. Still, the analyst remains cautious on HPQ shares.

"We remain concerned about weak consumer spending, as well as weak Enterprise spending, and reiterate Underperform as we expect margins to normalize lower, and estimates to be revised lower over the next couple of qtrs.," Mohan said.

Barclays analyst Tim Long also weighed in on the guidance, which may prove to be "aggressive."

"While initiatives into growth segments within Personal Systems and Printing are interesting (particularly gaming, digital services, subscription, graphics, 3D printing and now AI PC), we are concerned that they will not move the needle much in the near term," Long said in a note.

"We think HP+ and Big Tank are pulling forward hardware demand and could see a revenue drop down the road. We continue to see downside for shares with near term top-line, margin and cash flow pressures, though cost cuts help offset some of the underlying weaknesses."

Additional reporting by Senad Karaahmetovic

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