Q1 2022 HP Inc Earnings Call
For materially from the amounts ultimately reported in Hp's Form 10-Q for the fiscal quarter ended January 31, 2022 and Hp's other SEC filings.
During this webcast unless otherwise specifically noted all comparisons are year over year comparisons with the corresponding year ago period.
The financial information that has been expressed on a non-GAAP basis. We've included reconciliations to the comparable GAAP information.
Please refer to the tables and slide presentation accompanying today's earnings release for those reconciliations with that I'd now like to turn the call over to Enrique.
Thanks, Alright.
Thank you all for joining today's call.
Before I discuss the quarter I want to briefly address that.
Folding situation in Ukraine.
Well it will be enough our people very firmly on our customers and partners is our top concern.
We are doing everything we can to keep them safe.
We want nothing more than to see peace and stability restored to that region.
We have an experienced cross functional team in place focused on business continuity.
The environment is very fluid.
We are preparing for a range of scenarios.
But in the meantime in compliance with the administration recently approved sanctioned.
Have suspended shipments to Russia.
But difficult situation in Ukraine is the latest in a series of global challenges we have faced.
Time, and again, our team has shown remarkable agility and determination and I have great confidence in their ability to manage these situations.
When we were together at the end of 2021 I talked about our strategy to modernize our core expand into valuable adjacent here and build a more growth oriented portfolio.
And our first quarter results show the progress we are making against this plan.
We continue to see very strong demand driven in large part by the secular tailwind associated with hybrid.
The way people work and live has fundamentally changed.
And we see this trend continuing across our segments plus part of the pandemic.
This creates incredible opportunities for innovation and growth.
Companies are Reconfiguring office space to be more collaborative.
And this is requiring a refresh in the IC strategy.
Services and security offering.
Consumers are investing to improve their home office setup as high res work becomes the norm.
And when they are not working people are looking for more immersive entertainment experiences with improved video.
Audio and battery performance.
Underlying ALLETE is a growing desire from both consumers and commercial customers, who buy from companies with well developed ESG goals.
Each of these trends play to our thing.
And they drove our Q1 results.
We grew revenue operating profit EPS and free cash flow, continuing our track record of meeting or exceeding our commitments.
Let me walk through the details.
The quarter revenue grew 9% to $17 billion.
This is our highest ever quarterly revenue seems separation driven by demand for our products and services.
non-GAAP EPS grew more than twice as fast as revenue up 20% to $1.10.
And we generated $1 $4 billion for free cash flow, while returning 127% of free cash flow to shareholders through share repurchases and dividends.
Our results were particularly strong in the key growth areas that I outlined last year.
Collectively these businesses grew double digits this quarter.
This includes more than 20% growth in gaming more than 40% growth in peripheral.
And 20% growth for our industrial graphics and CD portfolio.
We are bullish in our opportunities you leased area and we expect them to become a larger part of our overall revenue and profit mix moving forward.
We delivered while continuing to navigate a complex environment of industry wide component shortages and logistical constraints.
Despite steady progress against our plans to strengthen our operational processes. It will take time before the gap between supply and demand slowly dissipates.
We are securing more parts for products searching for most of them made parts suppliers.
Okay team available part to optimize our product mix.
This is an area of relentless focus for our team.
Let me now talk about the progress we see across each of our business units.
In personal systems, it was a record quarter with our highest revenue and.
Operating profit since separation.
Revenue grew 15% to more than twice daily on dollars.
We deliver O P rate above the high end of our target range.
And our disciplined execution and pricing strategy enabled us to manage cost and component headwind.
A big contributor to our success is the improved mix we are driving.
Our leadership in the commercial PC market is a significant competitive advantage as more and more offices reopen.
This is why we saw the most demand and highest profitability.
Within commercial we saw strong growth in Windows based notebooks and mobile workstations quite our share expanded this quarter.
In consumer we continue to experience demand shift into high value categories like premium and gaming.
We also reduced our backlog quarter over quarter and our supply chain actions are generating positive results.
And as we prioritize operational execution, we continued to innovate at the heart of hybrid.
Last month, we had our biggest consumer electronic show ever.
Launching nearly 50, new innovations that are changing the way people collaborate create and play.
This included a major expansion of our portfolio of HB presence enabled devices as we strengthen our position in the large and growing video conferencing market.
We also launched our latest gaming solutions and peripheral including our new hyper ex wireless headset that can last 300 hours on a single charge.
Turning to print, we continue to face industry wide supply chain challenges.
As a result of component shortages and logistics exceptions revenue declined 4% in the quarter and our elevated order backlog increased sequentially.
We now expect these dynamics to impact print throughout much of fiscal year 'twenty two.
We are driving a very disciplined pricing and allocation strategy across screens.
And our operating profit rate of 18, 2% was above the high end of our target range.
We're also making good progress against our long term priorities.
We continue to modernize core print and drive HP plus global adoption.
H B.
He's a big selling point of our new and inspired lineup, which we successfully launched in the U S last year and rollout across Europe in Q1.
And we are seeing strong demand for our commercial portfolio as companies plan for office reopening.
We are earning accolades for industry leadership in areas, such as hybrid work security and print sustainability.
It was an outstanding quarter for our industrial printing business.
In industrial graphics, we generated another quarter of double digit revenue growth and have built a healthy backlog of industrial presence.
This illustrates the positive recovery trend from prior year quarter.
And we delivered significant year over year revenue growth in three D printing.
More than 120 million multi jet fusion part has been printed.
And we are accelerating our strategy to create high value end to end applications in vertical market.
Along these lines, we completed the acquisition of choose packaging.
Shoes has invented the worlds only commercially available zero plastic paper bottle.
And they are working with many global brands to commercialize their offering including large enterprises like henkel.
This acquisition complements our molded fiber solution and positions HP well in the $10 billion fiber based sustainable packaging industry.
There are more than 150 million tons of single use plastics produced each year and.
And we intend to disrupt this market with fiber based 100% plastic free packaging.
In fact, our focus on sustainability is driving innovation across our entire portfolio.
In personal systems, we now have more than 300 products made using ocean plastic.
And in print.
We recently launched the most sustainable toner cartridge, we have ever developed.
We support our brother EOG and sustainable impact strategy.
The actions we are taking on climate.
Human rights and digital equity are differentiating our brands and helping to drive our business forward.
In fact, our sustainable impact agenda help us to win more than $3 $5 billion in new sales in fiscal 2021 .
This is a three fold increase over the previous year, reflecting the power of our commitments.
Our partners are also doubling down on sustainability.
More than 10000 channel partners across over 40 countries right now able to participate in HP amplified impact a first of its carrying partner program aligned with our sustainable impact strategy.
It is a great example of how we are leveraging our global scale to help address some of society biggest challenges while also positioning our business for success.
The progress we are making across our strategic priorities is driving strong cash flow.
And we continue to be disciplined stewards of capital.
We have a robust return based approach that we are applying to every aspect of our capital allocation strategy.
We expect to continue to make organic and inorganic investments in areas, where we see growth opportunities.
While continuing to return capital to our shareholders.
And we are committed to aggressive repurchase levels of at least $4 billion in fiscal year 'twenty two.
It was an excellent start to the year.
We are delivering on our commitments and creating significant value for our shareholders.
We are returning highly attractive levels of capital to shareholders.
And we remain confident in our ability to deliver sustained revenue operating profit EPS and free cash flow growth, how do we build a stronger H b.
Let me now turn the call over to Mary who will take you through the details for the quarter and our fiscal Q2 outlook.
Murray over to you.
Thank you and good afternoon, everyone.
Great to connect with all of you again.
I want to start with Enrique left off in terms of outperformance in the quarter.
It was a very strong start to the year.
Demand for our technology capable trends, such as hybrid and powerful innovation across our portfolio and driving long term value creation.
And do you see this reflected in our Q1 results as we delivered across all of our key financial metrics, including growing revenue.
Operating profit and EPS.
Let me give you a closer look at the details.
Net revenue was $17 billion in the quarter.
9% nominally and eight different inconstant currency reach.
Regionally in constant currency Americas declined, 1% EMEA increased 8% eight P J increased 28%.
Remains strong creating sustained tailwind across our businesses that.
That is Enrique mentioned so.
Apply chain constraints remain a top line headwind for both personal systems and grab it.
Yes.
These dynamics were particularly impactful to our print hardware results, which I will talk about in a moment.
Gross margin was 19, 9% in the quarter down one three points year on year.
Kris was primarily driven by increased personal systems mix and higher costs, including commodities and logistics, partially offset by pricing including currency.
non-GAAP operating expenses were $1 $9 billion or 11, 1% of revenues. The increase in operating expenses was primarily driven by increased investments in go to market, partially offset by lower personal systems R&D due to partner funding.
non-GAAP operating profit was $1 $5 billion up one, 5% and non-GAAP the Hawaiian expense was $66 million for the quarter.
non-GAAP diluted net earnings per share increased 18 cents or 20% to $1.10 with a diluted share count of approximately $1 1 billion shares.
non-GAAP diluted net earnings per share excludes a net expense totaling $117 million, primarily related to restructuring and other charges amortization of intangibles acquisition related charges and other tax adjustments, partially offset by non operating retirement related.
Got it.
As a result, Q1 GAAP diluted net earnings per share with 19, 9%.
Now, let's turn to segment performance.
In Q1 personal systems revenue was $12 $2 billion, a 15% year on year total units were down 6% given the expected supply chain challenges logistics delays and lower credit mix. Despite this we still grew revenue double digits, reflecting this.
Strength of Windows demand favorable pricing and a mix shift towards higher value categories like mainstream and premium commercial.
As an example, commercial PC windows units were up over 20% year on year.
Drilling into the details.
Consumer revenue was down 1%.
The commercial was up 26%.
By product category revenue was up 14% for notebooks, 17%, but desktop at 40% for workstations. We also continued to drive double digit growth across peripherals gaming device as a service each of which are part of what Enrique shed that's our focus.
On creating.
More growth oriented portfolio.
Personal systems delivered almost 1 billion of operating profit with operating margins of seven 8%.
Our margin improved <unk> seven points.
Mainly due to favorable pricing, including currency product mix operating expense mix.
R&D funding, partially offset by higher commodity costs.
In print our results reflected our focus on execution and the strength of our portfolio as we navigate the supply chain environment.
In Q1 total revenue with Cove point $8 billion down, 4% driven by lower hardware units and lower supplies revenue.
This was partially offset by favorable pricing in hardware and growth in industrial graphics and services.
Total hardware units declined 28% largely due to continued component and logistics constraints.
We now expect to extend into the second half of 2022 .
By customer segment consumer revenue was down 23% with units down 31%.
Commercial revenue grew 9% with units down 3% consumer demand remained solid however revenue across both home and office with a gang constrained by the current supply chain and logistics environment.
The commercial recovery showed further progress with hardware revenue growth and double digit increases in both industrial graphics and large format.
We expect to see a gradual and uneven recovery in commercial extending through 2022 .
Supplies revenue was $3.1 billion declining 2% year on year consistent with the outlook that we provided at our analyst day.
The decline was driven primarily by further normalization in home printing as expected, partially offset by the gradual recovery potential.
We saw momentum in our contractual business with instant ink once again delivered double digit increases in both cumulative subscriber growth in revenues.
We also drove managed print services revenue and total contract value with the new T C D up double digit.
Print operating profit with $879 million declining $119 million.
Operating margin was 18, 2%.
Operating margin decreased one six points driven primarily by a tough prior year compare and higher costs, including commodity and logistics costs. This was partially offset by pricing, including currency and improved performance at industrial graphics and three D.
Now, let me turn to our transformation efforts.
As we move into the third year of our cost savings program, we remain steadfast in our focus on delivering on our $1 2 billion dollar gross run rate structural cost reduction plan.
Our transformation continues to create new capabilities and long term value creation.
In print for example, we are modernizing our digital ecosystem by consolidating our software platforms.
Our new architecture provides a digital ecosystem, allowing us to develop modern capabilities and services offerings to drive differentiated customer experiences.
All H P smart app.
In addition, we are leveraging these digital ecosystem enhancements to streamline and scale, our big data platform capabilities, allowing us to gain valuable real time insights about our customers and business operations.
The structural cost savings from our transformation efforts are enabling these types of strategic growth drivers and we see many more opportunities to drive business enablement through additional software services and solutions offerings.
Now, let me move to cash flow and capital allocation.
Q1 cash flow from operations and free cash flow was strong at $1 7 billion and $1 $4 billion respectively.
The cash conversion cycle was minus 33 days in the quarter. This improved eight days sequentially as higher days payable outstanding and lower days sales outstanding was only partially offset by the increase in days of inventory.
Significant capital return remains a key part of our capital allocation strategy in.
In Q1, we returned approximately $1 $8 billion to shareholders, which represented 127% of free cash flow.
This included $1 $5 billion in share repurchases and $271 million in cash dividends we.
We expect to aggressively buyback shares of at least 4 billion in FY 'twenty two.
And we remain on track to exceed our $16 billion return of capital targets.
Looking forward to Q2, and the rest of the FY 'twenty two we continue to model multiple scenarios related to supply availability logistics constraints pricing dynamics.
For all the macro environment.
In particular keep the following in mind related to our Q2 and overall financial outlook.
We are raising our full year outlook for FY 'twenty two to reflect the strength of our Q1 results and expected strength of our Q2 performance.
We expect currency to be about 1% year over year headwind for FY 'twenty two.
With regard to the financial impact of the unfolding situation in Ukraine, including the current sections on Russia, we are factoring in our best assumptions at this time.
Recognizing that the situation remains fluid and highly uncertain.
In Q2, we expect a negative impact to our topline and bottom line as a result of the sanctions that have been imposed.
In total net of mitigation, we have factored in a two to three cents EPS headwind to our Q2 guidance.
For the second half of 'twenty two.
The ramifications of the situation in Europe and beyond are uncertain and we are monitoring this closely.
The personal systems, we continue to see strong demand for our P. CS, particularly in commercial as well as favorable pricing.
We expect solid revenue growth to continue through fiscal 'twenty, two with a further shift towards higher value categories, including commercial premium and peripherals.
Specifically for Q2, we expect our top line results to be incrementally constrained by volatile supply chain and logistics environment and also the dynamic macro environment, including the Russia situation all negatively impacting our top line.
In total we expect a high single digit decline quarter on quarter to personal systems revenue.
We expect PS margins at the high end about 5% to 7% long term range, particularly in Q2.
In print, we expect solid demand in consumer Staples will pricing disciplined cost management and further normalization in mix, that's commercial gradually improve through 2022.
With regard to print supply chain, we expect similar to what we saw in Q1 component shortages and logistics delays to constrained revenue.
We expect these supply chain constraints to continue into the second half of 2022.
We now expect margins to be at the high end of our 16% to 18% range for FY 'twenty two.
For Q2, specifically given the continued hardware constraints, we are anticipating we expect <unk> margin to be above 16% to 18% range.
Taking these considerations into account we are providing the following outlook.
We expect second quarter non-GAAP diluted net earnings per share to be in the range of one dollar and two cents.
To one dollar and eight cents.
And second quarter GAAP diluted net earnings per share to be in the range of 95.
To $1.01.
We expect FY 'twenty, two non-GAAP diluted net earnings per share to be in the range of $4.18 to $4.38 and FY 'twenty two GAAP diluted net earnings per share to be in the range of $3.87 to $4.07.
For FY 'twenty, two we expect our free cash flow to be at least $4 $5 billion.
We are making excellent progress against our priorities and I'm confident in our ability to deliver consistent long term sustainable growth.
I'll stop here, so we can take your questions.
Thank you and we will now begin the question and answer session.
To ask a question you May Press Star then one on your Touchtone phone.
If youre using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
We also ask that you please limit yourself to one question and a single follow up.
The first question today comes from Shannon Cross with Cross Research. Please go ahead.
Thank you very much for taking my questions given the importance of E. S. P growth and your revenue can you help us to understand a little bit more about the dynamics behind what's driving the increases both in print and PC and what I'm thinking is you know how much of the growth is related to mix like in Pcs going to commercial from consumer and <unk>.
Versus sort of how much of the price increase is more on a like for like basis.
And then are kind of positioned to offset inflation and then I have a follow up thank you.
Hey, Shannon good afternoon, how are you I hope you're doing well so first of all I'll just start off by saying look.
We've continued to see the benefit from favorable pricing as you mentioned due to the dynamics around supply and demand imbalances and with respect to how we see it to mix shifts we've seen the impact of mix shifts year on year and quarter on quarter from consumer to commercial as you heard in the in our earnings announcements, we had a very strong.
<unk> performance on our revenue in commercial particularly in P. C. So in P. S and in print hardware that mixed shift was actually what drove a lot of the strength that you've seen in asp's.
Well some of it inflation now or well actually we have been pricing I think one of the benefits we've seen in the quarter is the impact of favorable pricing. So right now we've been able to price through the impacts that we've been seeing around supply chain commodity cost and logistics. So I'd say overall, we're managing the pricing environment very well.
Okay, and then and then the second question is just on free cash flow going forward. You know you had a significant benefit from accounts payable how should we think about free cash flow dynamics as we look through the year and how are you thinking about perhaps the ability and I mean, what what's going on now in Europe and sort of trying this all in the air Bud.
You know in terms of the ability to maybe manage inventory levels, a bit better than and bleed through some of the excess component inventory you may have.
Yeah, No sure Shannon So festival I'd start out by saying that look we're really pleased with the free cash flow in the quarter of $1 4 billion and you know I I just at this point in time reiterate that we're still confident in our guide of at least 4.5 and I just point out that given those supply chain challenges that you referred to.
You know we are not planning to decrease our inventory as we originally commented. Therefore, we expect at this point in time to stay on track to our guide of at least $4 5 billion. In addition, I'd add just in closing that the typically you know we don't have jumped out I think our free cash flow guide at this point in the quarter either.
The next question comes from Ananda Baruah with loop capital. Please go ahead.
Yeah, Hi, good afternoon, guys, Hey, congrats on the solid execution and the ongoing momentum.
All right you guys, taking the question.
Two if I could I guess.
I jumped on a few minutes late.
So I apologize if this has already talked to you, but what are you guys thinking at this juncture for PC growth.
For the year and you have you have like a calendar year view also that would be that'd be helpful. And then I have a quick follow up as well. Thanks.
Let me, let me hi, Amanda and I will.
I will give you a firsthand view of what do we think in the market and then he will give you some comments on the guy who's in market Wise, we continue to see strong demand on the PC side.
Market projection for this year is that it will be around $200 billion bigger than what it was before the pandemic and we don't expect to see the level of group how do we sell in the past, but we've seen that the market is going to stay at the level, where it is today, which is again significantly higher than it was before the pandemic normally we will talk about.
Our guidance with respect to see them outright and good afternoon arms have been doing well so for the year, we expect margins to be at the high end of the range now we would comment just to note that in Q1, there were some part and the benefits from a personal systems partners that are onetime in nature.
If you look at our peers right in Q1, if you exclude those benefits are still ahead of the Q1 EPS range, but basically we bet we'd be at the high end and so if you think about the way to think about the margins in the the rest of the year. It's really it's that mix shift that we're seeing towards commercial those higher margin categories are driving the rate.
And finally, you know we're seeing the benefit of favorable pricing and then we're really seeing the ability for us to to be able to reprice for some of those commodity challenges that are out there in the market.
Yeah. That's helpful. And then just my follow up is I know you throughout 2021, you guys had been.
Putting in some initiatives to improve your positioning for component allocation.
And we're just wondering what the state of days like today.
And do you think you'll be successful and in procuring should be improving your probably your component allocation share as you go through the year.
Good question, So I've seen the progress we're making is reflected in the stock.
Hungry so because we've had in personal systems this quarter.
We said during our Investor day, our Fuqua, who are really on getting capacity and getting components for the premium categories for commercial and the growth in this area reflects the progress. We have made so we are pleased with the Burger at the same time, we have to acknowledge that this is to ensure it continues to be difficult we expect to continue to.
B.
With high levels of inventory through the backlog through the end of the year, but we were making good progress.
The next question comes from Jim Suva with Citi. Please go ahead.
Thank you since you spoke about Pcs. Some can we talk a little about printing and specifically can you talk about the supply chain about ink as well as print units in that channel versus equilibrium.
A little bit about that and then maybe my follow up I'll ask right now about what type of assumptions or page volumes are you expecting versus say pre COVID-19 levels.
Let me talk about the situation in first on the hardware and then I will talk about supplies on from the hardware perspective shipments. This quarter. These quarters have been impacted by availability of supply.
Sure. Both you know about Investor day, and during our Q4 earnings call.
We have a majority of the factories for printers and of our suppliers in southeast Asia on those countries, where ing Loaf will knock down the majority of the fall until December and therefore, we have seen now the <unk>.
The impact of that situation.
In print we use several components that are <unk> that have been designed by yours, whereas what we are seeing shortages.
A consequence of both we clearly had our sales impacted this quarter and we expect this to continue through the through the rest of the year.
In the case of supply situation used cars significantly improve we don't have any more limitations in terms of shipments.
The supplies business with at all perform.
Very positive very similar to what we shared during our Investor day.
So no big deviation from the plan that we have.
On the comments on the channel I think you brought up right now for both hardware and supplies.
We're comfortably within our range and in some cases to those supply constraints and Enrique referred to were actually below in some cases.
Great and then a follow up about assumptions and returned to the office to nurses pre COVID-19 levels can printing what what's your thoughts on that.
Let me take one.
On the office side again, no different from what we shared a few months ago. We just picked up the volume of pages in the size of the market will be around 80 person a veto or what it was pre COVID-19 .
And we are on the on our way to get there clearly because of army cone and the delays in some of your opening we're still not there, but we are seeing steady progress.
The case of whom the market is even though it was stronger than what we were predicting before COVID-19 and we expect it to continue to be for the foreseeable future.
The next question comes from Toni <unk> with Bernstein. Please go ahead.
Yes, Thank you for taking the question.
Maybe I guess first ask for just better clarification on.
What is happening with backlog I think Enrique in your prepared remarks, you said that PC backlog came down.
In the quarter.
But Murray said that.
Supply was a constraint to Pcs in the quarter. So maybe you can be.
Explicit about.
Either how your backlog changed in the quarter for both Pcs.
And print hardware or you can comment on order growth versus revenue growth for both Pcs and.
Print hardware in the quarter that would be helpful to dimension that that backlog question and I have a follow up please.
Sure. So let me let me take that one.
So you said in the prepared remarks in the case of personal systems for Pcs, we saw a decline.
During the quarter. It was even by two things number one is the progress we've made on their supply chain hub type being able to address the demand that we've had in categories like commercial or premium.
Well first of all we're giving them because we saw a slowdown in some other categories. Like for example, low end consumer would we have seen a reduction or a few months. The combination of both drove a reduction of backlog, but we're still operating with significantly higher backlog that would we normally do about blue remains elevated.
And we expect it to continue to be elevated for during the next quarters in.
In the case of print this situation is different.
Backlog grew quarter on quarter because of the Hartford for you explained before where the factories are located and also the availability of certain components like AC or type of well powered chips that we are still experiencing shortages.
That's helpful. I appreciate the color could could you quantify specifically what happened to <unk> backlog in the quarter.
I think last quarter, you said it was nearly a quarter of backlog so either provide the number of weeks that it came down or.
What the relative order growth rate was in dollar terms for Pcs relative to your revenue rate.
It'd be really helpful. And then just just so I just.
Just to clarify on guidance for my second question.
Okay.
It looks like normal seasonality is down.
Four or 5% sequentially I think on your last call you sort of said this.
It's going to be a wacky year in terms of normal seasonality. So how do we think about what seasonal growth will be in Q2, I think you said Pcs would be down.
High single digits.
Sequentially.
How do we think about overall revenue.
For HP on a sequential basis, and how do we sort of think about seasonality for the year are your comments around kind of a more smooth year still sort of how we should expect things are or can you add any color on that so just just to follow up on specificity on PC backlog. Please and then.
In Q2 and seasonality.
Seasonality for the remainder of the year. Thank you yeah. So on PC backlog I will only be a little bit more specific it is below one quarter, which is where we were but continues to be very elevated we'd be the only called the other cleared I will provide the similar to what I shared a week a loss a quarter ago, we are seeing it more.
Concentrated now in some areas of the portfolio like commercial and premium.
Home. This is where the backlog is celebrated and Marie will will take the question on guidance.
Hey, Tony Good afternoon, so an intensive just addressing your question around seasonality.
Very much in line with what we said at the analyst day that normal seasonality I'll just start out there doesn't apply for FY 'twenty two.
Obviously now as you think about Q2 and beyond we've had a very strong start to the year and as a result of that with the performance that we've had here in Q1, we expect now a much more balanced first half versus second half and so we're no longer expecting our revenue to be more linear.
Across the quarters as we have historically seen and then just to sort of reiterate the point that you made around personal systems revenue as we said earlier due to the.
The record revenue the Russian situation and the continuing supply challenges that you've heard and read Gaye talk about we do expect Q2 P. S revenue to decline high single digits sequentially I hope that helps.
The next question comes from Amit <unk> with Evercore. Please go ahead.
Thanks for taking my question I have two as well.
Both on the supply side very specifically within print obviously, it was down two 3% year over year and Jan quarter, I'm wondering how should we think about supplies.
In April quarter, and even beyond because it compares start to get very difficult in that business. So love to understand how you kind of see that supplies the stock up for the next couple of quarters.
There won't be a whole lot of supply chain issues in that piece of the business.
So I think on the interplay with the performance you saw this quarter is in line to the guide that we provided at the time and during the Investor Day, where decline there, where we said we expected supply to decline low to mid single digits.
And when we look at the rest of the year, we expect that this will continue and be aligned to that projection.
Again, as I said before supply perform as we were expecting very small aviation slight reductions or usage in the LC side. There's obviously, we're close we're probably below expectations, but cheered him price compensated for that so overall in line to what we were expecting.
Got it.
I think this falloff.
Yeah, either Enrique Murray, but.
When I think I'd like to the full year guide that's been raised right now.
Slide 12% to 15% EPS growth I think for fiscal 'twenty two.
Could you just talk about how do I think about the delta or how much of that is going to come from buybacks versus operating profit dollar expansion of operating profit dollar growth because in Q1 at least your share count reduction was 15% so.
If that momentum sustains you could conceivably achieve your full year guide even if your operating profit dollars don't have any growth can you just talk about how that math works to easily yes.
Yes sure no. Good afternoon, it's very here. So look I think that our guide at Analyst day, We commented that the the operating profit flow through was really a full fiscal year of you. So I'll just say that.
Confident that Peter.
You will see the total of print and P. S. Operating profit dollars that they will increase year on year for the full year 'twenty two although I'd just point out, it's probably going to vary quarter by quarter.
It's important to remember I mean that how strong last year was because we're saying we're going to be growing EPS and also profit or after a very very strong gear, but that's the way it's important to remember given the compare that we had in 'twenty one.
The next question comes from one <unk> Mohan with Bank of America. Please go ahead.
Yes. Thank you Maria noted this quarter on quarter decline on high single digits to P. S. Revenues I was wondering if you could frame it a little differently sequentially, how should we be thinking about units versus asps fees and correct me if I'm wrong here, but from your comments it sounded like the size of the partner benefits to margins.
Roughly $100 million, which was one time can you can you give us some color on that and I'll follow up.
Yes.
Couple of comments to help you then on the sequential on P. S. So as I mentioned, we do see that single digit sequential decline on P. S revenue driven primarily as I mentioned around both the ongoing supply chain challenges and the Russia, Ukraine situation, which we also I think commented on in my prepared remarks. So.
That's what's guiding the revenue than on the op margin as I mentioned earlier, there were some part and the benefits from our personal systems partners, they're onetime in nature now if you you know.
Basically instead of exclude those in Q1 that you would get back to basically the P. S margin range being at the high end of the range, which is where we anticipate we will you know what the results will look like for Q2.
Yeah.
Okay, Thanks, Mary and Enrique if I could.
If we look at sort of a broader picture of what is happening with units, we're starting to see a decline on a year on year basis and it aligns fully with your comments on the comps being extremely tough from last year.
Why should investors not be concerned of this deceleration in units as a leading indicator of an eventual compression off of Asps.
In print, but also on the PC side. Thank you.
Thank you in the case of print really shipments this quarter really totally that doesn't mean by availability of supply. So I really wouldn't read anything on declines for volumes. Because this is really totally driven by how many printers, we and the rest of the market has been able to produce because he's not that I've never been an H P.
The situation.
Not really been an industry situation in.
In the case of personal systems, our view on the rest of the industry is that the size of the market. This year will be in the 340 to 50 million unit. This is what it was a few months ago and continues to be.
We also said that we expect the demand to shift towards commercial this is what we have seen this quarter.
Actually if you look at our numbers, we grow significantly in both Windows based P C's and commercial Pcs in many cases above 20%. So if you have any word we told the market it was going to happen and when we look now at the fundamental your backlog, but the funnel of opportunities we have for the second Harbin.
The rest of the year in commercial continues to be very strong.
The next question comes from Erik Woodring with Morgan Stanley . Please go ahead.
Hey, guys. Thanks for taking the question I think one just follow up on that question and really just ask about the sustainability of P. C. Isps and I ask because I imagine your ability to leverage pricing gets more difficult as we move later into the year and supply improve.
<unk> plus you, obviously faced more difficult pricing comps and so.
Maybe just to dig down a little bit more so how should we think about maybe PC pricing versus units in the second half of this year any color that you can share there and then I have a follow up thanks.
I think this the evolution of pricing is really going to be determined by the difference between supply and demand as I mentioned before there are areas, where the demand and supply there is more of a balance between demand and supply like low end consumer and therefore, we expect to see more price competition there.
Areas like Premier like commercial we're really still demand is above supply, where we expect to continue to maintain the ability to price that we have had until now on all these factors are built into the guide that we provided.
It's also important to highlight that we within the personal systems side, we continue to see very high growth opportunities in the growth area that we have identified them.
Both gaming peripheral workplace solutions are really growing in a very strong way, which also gives confidence in our ability to continue to grow in a sustainable way.
Awesome I appreciate that and then maybe just as my follow up you guys have committed to doing 5 billion of buybacks. This year, but if I look back over the last quarters, you know you've done more than a billion and a half of buybacks on average each quarter. So.
Maybe why shouldn't we think about buybacks in the rest of this fiscal year being or for the for the total of this fiscal year being closer to you know five or 6 billion.
And if they if 4 billion target what would that imply or should we be thinking about buybacks slowing down into the remainder of the year.
Right, Yeah, Yeah to clarify because you mentioned <unk> five our goal and what we have said is that we will be at least $4 billion for sure.
This continues to be our clients. So this is what they would build in your model, yes, we bought more <unk> this quarter, but our goal is to complete the value plan it really clearly.
Years ago, and $4 billion. He is the minimum you need to do.
The next question comes from David Buck with UBS. Please go ahead.
Great. Thank you guys and thanks for taking the question. So my first question is can you give us some more clarity on sort of the price increases that you pushed through on the printing side I think earlier this year kind of what the market reaction has been and the likelihood of that sticking as supply comes online as we move through the rest of this year and I'll just give you my second question.
As well as when you think about backlog I think you mentioned its primarily commercial and high end consumer can you just kind of give us an update on where chromebooks sits in that backlog and how we should think about potentially chromebook, becoming a bigger part of the backlog as we move into lets say the fall in next year's holiday season, and kind of the prospects for chromebook, becoming a bigger part of the business in the second half of the year.
Thanks for let me, let me take both questions in the case of a sprint I think we should differentiate hardware versus supply in the case of hardware.
We're in shipments has really limited by supply that is hard to read any implication on on pricing because really what has been driving that.
Number of units we have shipped is the number of units we have been able to to produce we are shipping everything we built in the case of suppliers, where we also.
And drive price increases I think what is important to highlight is that for both ink and toner.
The price increases we were able to grow share, which I think is a is a very important metric that shows that the deep from a volume perspective. The day, we haven't seen any any negative impact on driven by the price increase.
We did a really good point, our full year guide actually contemplate co pay those price increases as well.
And then your question on Chromebooks, let me I'll take that.
They did a quarter ago that we remind that chromebook is really relatively small part of our business.
We already said a quarter ago, where that the backlog for for Chromebooks has been basically totally reduced.
We are expecting demand for chromebooks to start growing as we had seen in previous year in the Q2, Q2 Q3 timeframe, but at this point, we have enough availability of components in that side the wood.
And we don't expect backlog.
Backlog to grow in that space.
And just quickly thats embedded in Europe , PSG margins sort of a growth in the chromebook business as we move through the year as well, yes. All of it is built into the into the guide I mean to the margin projections that we have of course.
The next question comes from Panic strategy with J P. Morgan. Please go ahead.
Great. Thanks for taking my question, if I can just start on trend for us.
Motion segment, then Ricky.
You mentioned the ongoing recovery in the office business as well as the market share increases was there any curious because I think even when we talk to one of your smaller competitors in the commercial print market did talk about share.
Share increases if you can dive into that a bit more on what's driving the share increase, particularly as you remain supply constrained.
Longer term share increases for HP in the commercial print business and then I have a follow up. Thank you Yep sure Mike Roman to ensure increases were specifically on supply. We'd said, we shared a couple of years ago is a big part of our strategy on supplies and we.
We have been doing during the last two years is to execute on the toner side on the commercial printers. The same strategies that we had implemented when home printers worrying for previous years.
A combination of marketing efforts is a combination of technologies that we built in the printer is a combination of improving the quality of supply and as a result of all of it we are driving a weaker being able to reverse a trend that we had in the past, where we're losing share in Pune and as we have been sharing during the last quarters no.
We are growing share of tornado gain so that today. This is what I meant in the case of hardware and also time improvements from a share perspective, but again. This is just driven by availability of supply when we have supply there is demand and we're able to ship more.
Okay got it.
My follow up I think this way anymore from Murray.
The margins I think for the quarter, you mentioned you'd be once you exclude the partner benefits seem to be at the high end of the range that you specify the five to seven but how do we think about the highest cost of components of supply.
That number I'm just trying to think about it does that moderate as you go through the yield.
So you take some supply actions.
Is that going to drive that higher corporate costs to persist for longer how should I think about it. Thank you.
Yes, so with respect to our margin ranges for the rest of the year, we basically calibrated our ability to be able to reprice a commodity. So you know I think we've done an excellent childhood actually managing our pricing and really be able to deal with the volatility that we're seeing across the commodities logistics and then repricing that true through the market. So our P. S.
Margin, we expect it to be at the high end of the range for the remainder of the year.
It reflects that.
And I think this was our last question. So let me say thank you all for joining the call.
As I said at the beginning of the call. We're really pleased with our start to the year clearly the strategy that we have to modernize our core expanding into adjacencies and creating new business that is growing and this is reflected in the result that we posted today and this of course gives us great confidence in our ability to grow revenue.
Operating profit EPS and free cash flow in a sustained way and.
Today before we fully believe I want to invite all of you to join me English and Murray I'm really happy birthday.
I am sure there is nothing better to do everything that the expanding middle class.
Earnings call.
Happy birthday, Thank you Enrique.
And thank everybody for joining.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.