Release Date: November 26, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- HP Inc (HPQ, Financial) reported a 2% year-over-year revenue increase for the second consecutive quarter, driven by strong performance in both personal systems and print.
- The company achieved a 3% growth in non-GAAP EPS, reaching $0.93, which was in line with their outlook.
- HP Inc (HPQ) showcased significant innovation, particularly in AI-powered capabilities, with new product launches like the EliteBook X and OmniBook Ultra Flip.
- The company gained market share in high-value categories, including commercial and consumer premium PCs, and maintained the number one market share in AI PCs within the Windows ecosystem.
- HP Inc (HPQ) returned nearly 100% of its free cash flow to shareholders, demonstrating a strong commitment to shareholder returns.
Negative Points
- HP Inc (HPQ) faced continued pressure from rising commodity costs, impacting operating profit margins.
- The company anticipates a decline in the print market by low single digits in fiscal year 2025.
- Despite cost optimizations, the expected growth in free cash flow for the next year is only projected to be in line with earnings, not materially higher.
- The competitive pricing environment in the print segment remains challenging, particularly from Japanese competitors benefiting from a weaker yen.
- HP Inc (HPQ) expects the first quarter EPS to be lower than typical seasonality, driven by stock compensation expenses and seasonal volume declines.
Q & A Highlights
Q: Your first quarter EPS is typically about 25% of the full year, but this year it's closer to 20%. Can you explain the factors contributing to this change?
A: Karen Parkhill, CFO: Our Q1 EPS is usually down sequentially due to seasonal volume declines and an increase in corporate other expenses, primarily driven by the timing of stock compensation expense, with roughly one-third expected to hit in Q1.
Q: Despite cost optimizations, why isn't free cash flow expected to be materially higher next year?
A: Karen Parkhill, CFO: We expect free cash flow to grow roughly in line with earnings. While we will spend less on restructuring charges, this will be offset by slightly higher capital expenditures to support growth plans.
Q: Why is the print operating margin range set at 16% to 19% when you've consistently achieved 19%?
A: Karen Parkhill, CFO: We maintain the lower end of the range to allow flexibility to lean into opportunities and remain cognizant of dynamic market conditions. We focus on protecting profitability by reducing unprofitable units and increasing lifetime customer profitability through subscriptions.
Q: Why don't you expect to gain market share next year despite strong Q4 performance?
A: Enrique Lores, CEO: We aim to be conservative in our assumptions. Our goal is to grow share in profitable categories, focusing on areas where we see opportunities to do so profitably, particularly in commercial PCs.
Q: What impact will the expansion of AI PC units have on ASPs and PS margins?
A: Enrique Lores, CEO: AI PCs are expected to drive an improvement in average selling price. We anticipate AI PCs to be 40% to 60% of the mix in three years, with a 5% to 10% impact on the overall category.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
