HP Stock Falls 8% on Q2 Earnings Miss, Revenues Rise Y/Y

HP Inc. shares fell 7.8% after hours following a Q2 earnings miss, with non-GAAP EPS at $0.71, 11.3% below consensus, despite a 2.4% year-over-year revenue increase to $13.2 billion driven by Personal Systems sales growth of 7%. The company's Q3 EPS guidance of $0.68-$0.80 also fell short of the $0.82 consensus, leading to a lowered fiscal year 2025 EPS guidance of $3.00-$3.30, below the $3.44 consensus estimate.

Analysis

HP Inc. (HPQ) reported challenging second-quarter fiscal 2025 results, characterized by a significant earnings miss and a cautious outlook, which prompted a 7.8% decline in its shares during after-market trading. The company's non-GAAP earnings per share of 71 cents fell 11.3% short of the Zacks Consensus Estimate and marked a 13% decrease year-over-year from 82 cents, extending a pattern of missing earnings estimates for the fourth consecutive quarter with an average negative surprise of 4.3%. Despite revenues increasing 2.4% year-over-year to $13.2 billion, this figure also missed consensus estimates by 1.7%; growth was driven by a 7% rise in Personal Systems (PS) revenues to $9 billion, itself supported by a 6% increase in total PC units sold and a notable 11% surge in Commercial PS shipments. However, the Printing business continued to be a drag, with revenues falling 4% year-over-year to $4.2 billion, impacted by weakness in Commercial Printing and a 5% decline in Supplies revenues. Profitability eroded as PS non-GAAP operating margin contracted 150 basis points to 4.5%, Printing's margin fell 50 basis points to 19.5%, and HP’s overall non-GAAP operating margin from continuing operations declined 120 basis points to 9%. The company's financial health also showed signs of strain with negative free cash flow of $95 million for the quarter, although it generated $38 million from operating activities. Reflecting these challenges, HPQ issued Q3 non-GAAP EPS guidance of 68-80 cents, below the 82 cents consensus, and revised its full-year fiscal 2025 non-GAAP EPS forecast downward to $3.00-$3.30 (from a previously guided range that implies a higher outlook, though the article states this new range is 'up from' $3.06-$3.36, the context and summary confirm a reduction), significantly below the $3.44 consensus, while projecting fiscal 2025 free cash flow between $2.6-$3.0 billion.

Key Decisions for Investors

• Given HPQ's consistent earnings misses, contracting operating margins, negative Q2 free cash flow, and lowered full-year guidance, investors should adopt a cautious stance and critically reassess their exposure to the stock.
• The divergent performance, with growth in Personal Systems (particularly Commercial PS) contrasting sharply with the ongoing decline in the Printing segment, necessitates careful monitoring of segmental trends and management's strategies to address the Printing division's underperformance.
• Investors should monitor upcoming quarters for any stabilization in earnings and margins, improvements in free cash flow generation, and indications that the Personal Systems segment's strength can meaningfully offset the Printing business's structural challenges before considering new or increased positions.