What is Major Takeaway of HP’s Quarterly Earnings Report and Whether Former Covid Lockdown Beneficiaries Uniform at Being Able to Solidify Their Post-Covid Performances?

Another tech bellwether company released its quarterly earnings yesterday. Hewlett-Packard, HP (HPQ) shares are diving 3.3% on Friday August 27th’s premarket, following a mixed fiscal 3Q earnings report and the company’s soft guidance. In short, HP’s profits firmly beat expectations, but revenues grew just 7% amid flattening PC sales results and rather bleak forward projections. Are heydays for HP over, or what the veteran PC company’s management communicated to investors was nothing more than just an emotional blues?

Let’s get to the numbers. Adjusted earnings per share more than doubled to $1 a share, and were well above the company's forecast range of 81 cents to 85 cents a share. That compared with the same period a year ago, when HP (HPQ) earned 49 cents a share, on $14.3 billion in sales. Time to open corks of champagne? Not quite so.

Notwithstanding strong earnings numbers, sales of $15.3 billion (+7% YoY) missed by $620 million. Specifically, although consumer net revenue there rose 3%, commercial sales fell 1% and revenue in the company's core personal systems operations was flat at $10.4 billion. Overall units ended up flat as well, with notebooks up just 2% and desktops even down 7%. Operating margin in personal systems was stable at 8.4%.

Meanwhile in terms of the printing branch’s reported numbers, net revenue rose 24% to $4.9 billion, and operating margin remained at an obviously upbeat 17.6%. Consumer printing revenue rose 15%, and commercial sales climbed 46%, while supplies net revenue rose 20%. Units overall were down 4%, as a 29% gain in commercial units was countered by an 8% decline from the consumer side. Net cash from operations was $1.1 billion, and free cash flow of $1 billion topped expectations for $724 million. That division’s accounts receivable at the end of the quarter were $4.9 billion, with due payments up 1 day from the last quarter, to 29 days.

Inventory meanwhile ended up at $8.2 billion, up 8 days on a quarterly basis, to 62 days. And accounts payable ended at $15.9 billion, also up 10 days from last quarter, to 120 days.

For its fiscal Q4 2021, HP said it expects to earn between 84 cents and 90 cents a share, compared to a consensus estimate of 80 cents a share. The company also forecast full-year earnings of $3.69 to $3.75 a share, slightly better than the Street’s estimate for a profit of $3.50 a share. The company also expected free cash flow of at least $4 billion for its fiscal year.

What is the most evident takeaway from these numbers? Apparently, HP is losing steam in terms of its main last year’s sales driver, PC sales. HP remains very strong in its core printing business – however, it doesn’t constitute comparable opportunities for continuation of a strong sales momentum the company experienced in the FY 2020 in the wake of the pandemic-evoked lockdowns. What is even the greater summarizing takeaway from the mixed HP’s earnings report? This report is prompting investors to be more vigilant in identifying the formed Covid beneficiaries in terms of their ability to sustain growth momentums by adjusting their businesses to live up to new world reality. Arguably and regrettably, HP couldn’t be named as one of them.