HP cuts annual profit forecast as tariffs weigh on demand, shares fall

HP Inc. (HPQ.N) shares fell 14% after the company cut its fiscal year 2025 adjusted profit forecast to $3.00-$3.30 per share, down from $3.45-$3.75, citing the negative impact of U.S. tariffs on PC demand and increased costs; the company expects to offset these costs by Q4, shifting production to countries including Vietnam, Thailand, and Mexico to mitigate tariff impacts.

Analysis

HP Inc. (HPQ.N) has significantly revised its fiscal 2025 adjusted profit forecast downwards to $3.00-$3.30 per share from a prior range of $3.45-$3.75, a projection now notably below the analyst consensus of $3.49 per share. This guidance cut, which precipitated a 14% decline in its shares during extended trading, is primarily attributed to the adverse effects of U.S. tariffs and associated inflationary pressures, which are expected to moderate PC market growth and negatively impact demand, according to research firm IDC. The company's CFO, Karen Parkhill, highlighted that the Personal Systems segment is experiencing the most substantial cost impact from these tariffs, encompassing both direct costs and investments made to counteract them, though HP aims to offset these costs by the fourth quarter. For its second quarter ended April 30, HP reported revenue of $13.22 billion, slightly exceeding analysts' average estimate of $13.14 billion. However, its adjusted earnings per share of 71 cents missed estimates of 80 cents, with CEO Enrique Lores stating that Q2 was impacted by higher-than-expected tariffs. In response, HP is diversifying its manufacturing base, increasing production in Vietnam, Thailand, India, Mexico, and the U.S., with the expectation that nearly all products sold in North America will be manufactured outside China by the end of June. While the Personal Systems segment saw a 7% year-over-year sales increase in Q2, the Printing unit experienced a 4% sales decline. The company also issued a third-quarter adjusted profit per share forecast of 68 cents to 80 cents, falling short of the 90 cents estimated by analysts, reflecting ongoing headwinds. The overall sentiment surrounding this news is strongly negative (-0.75 sentiment score), underscoring the market's concern over the tariff impact and revised outlook.

Key Decisions for Investors

• Investors should re-evaluate their positions in HPQ given the significant downward revision in the fiscal 2025 profit forecast and the immediate negative market reaction.
• Monitor the company's progress in offsetting tariff-related costs by Q4 and the effectiveness of its supply chain diversification efforts, particularly the shift of production out of China.
• Exercise caution due to the lowered Q3 and full-year 2025 guidance, which now trails consensus estimates, and closely watch for signs of stabilization or further deterioration in PC market demand and tariff impacts.
• Assess the divergent performance between the Personal Systems segment, which grew 7% in Q2, and the Printing unit, which declined 4%, in the context of overall profitability pressures.