Hewlett-Packard (HPQ) is set to release fourth quarter fiscal 2022 results after Tuesday’s closing bell. The tech giant has suffered not only from slumping PC demand, but also lower average selling prices. Supply chain disruptions have added to the pressure, forcing the company lower its full-year earnings outlook.
Despite the recent measures the company has taken to strengthen the business, analysts aren’t expecting the results to significantly improve in the next two quarters. Hewlett-Packard stock retreated last week following a downgrade by investment firm Credit Suisse, noting that the tech giant could be adversely impacted by macro concerns which could “challenge” the company’s near-term potential.
Citing “weakening consumer sentiment” which accounts for more than 50% of the company’s PC revenue, analyst Shannon Cross cut her rating on the stock to Neutral from Outperform. Ahead of the company’s earnings results, Cross noted that HP’s revenue could be pressured not only from slower enterprise demand, but also due to lower average selling prices. “We believe lower demand will likely pressure pricing, which has benefited from shortages, inflation and dollar strength,” Cross wrote in a note to clients.
Currently trading at around $29 per share, HP stock has declined 22% year to date, compared to a 17% decline in the S&P 500 index. Investors want to know whether betting on HP is still the right play. The shares have an average analyst price target of $30, suggesting they are now fairly valued relative to expectations. Nevertheless, on Tuesday investors will want to see evidence that HP can navigate through this turbulence and provide strong guidance.
For the three months that ended April, Wall Street expects Hewlett-Packard to earn 84 cents per share on revenue of $14.73 billion. This compares to the year-ago quarter when earnings came to 94 cents per share on revenue of $16.68 billion. For the full year, earnings are projected to rise 6% year over year to $4.07 per share, while full-year revenue of $62.84 billion would rise 1.7.% year over year.
In the last quarter, the company reported adjusted EPS of $1.04 which came in at the low end of management’s guidance. Not only did Q3 results miss top and bottom line expectations, Hewlett-Packard also lowered its full-year earnings outlook, citing continued weakness in PC sales. Notably, total revenue was down 4% to $14.7 billion, pushing operating margins lower by 30 basis points to 9.5% of revenue.
The company noted on the conference call with analysts that price competition pressured its results due to higher channel inventory levels, warning that current quarter might be even more challenging. During the quarter, overall total units were declined 25% with Notebooks units down 32%, while Desktops units were up just 1%. Personal Systems net revenue was $10.1 billion, down 3% year over year, yielding a 6.9% operating margin. The company also suffered a 20% decline in Consumer revenue decreased, which was offset by a 7% rise in Commercial revenue increased 7%.
The business environment is not likely to improve soon. According to research firm IDC, worldwide PC shipments totaled 74.3 million units in the third quarter of 2022, marking a 15% decline globally. “Shortages over the last several years have aggressively driven product mix shifts towards the premium end.” IDC also cited weakening demand, and orders being cut, to pressure average selling prices. Meanwhile, the number released from Gartner suggests an even steeper decline of 19.5% in global shipments.
Nevertheless, Hewlett-Packard’s ability to navigate the tough environment has been encouraging. Whether HP stock can rebound from here will depend on what the company says can provide evidence that revenue can reaccelerate during the holiday shopping season.
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