Earnings call transcript: HP Inc. Q2 2025 misses EPS forecast, stock dips

HP Inc. reported mixed Q2 2025 results, with revenue exceeding expectations at $13.2 billion versus the $13.07 billion forecast, driven by strong commercial PC sales, but EPS falling short at $0.71 compared to the expected $0.79 due to tariff-related costs. Despite the revenue beat, the stock declined 12.61% in aftermarket trading to $23.77, signaling investor concerns about profitability amid tariff pressures, though the company maintains a strong dividend yield of 4.26%. HP projects non-GAAP EPS between $3.00 and $3.30 for fiscal year 2025, anticipating tariff mitigation by Q4 through manufacturing diversification and strategic investments in AI.

Analysis

HP Inc.'s second-quarter 2025 results presented a mixed financial picture, characterized by revenue of $13.2 billion, surpassing the $13.07 billion forecast, primarily driven by an 8% constant currency growth in Personal Systems, particularly a 9% year-over-year increase in commercial PC revenue. However, earnings per share (EPS) of $0.71 fell short of the $0.79 analyst consensus, largely attributed to unmitigated tariff-related costs which impacted non-GAAP EPS by approximately $0.12 and reduced operating margin by 100 basis points to 7.3%. This earnings miss triggered a significant 12.61% aftermarket stock decline to $23.77, reflecting investor concerns over margin pressures despite the company's ongoing efforts to diversify its manufacturing, with nearly all North American products expected to be built outside China by June, and strategic initiatives like the launch of an AI-driven PC portfolio targeted to comprise 25% of its PC business by year-end. HP provided fiscal year 2025 non-GAAP EPS guidance of $3.00 to $3.30, anticipating full mitigation of current tariff impacts by the fourth quarter, though it moderated its PC market growth outlook to low single digits for 2025 due to macroeconomic uncertainty. Despite these headwinds, the company maintains a 4.26% dividend yield, a P/E ratio of 9.81, and is projected to achieve at least $2 billion in gross annual run rate structural savings by fiscal year-end 2025, with InvestingPro suggesting the stock appears undervalued based on its Fair Value assessment.

Key Decisions for Investors

• Investors should weigh the immediate impact of tariff-related margin compression and the moderated PC market outlook against HP's proactive supply chain diversification, significant cost-saving initiatives, and its strategic push into the higher-growth AI PC segment.
• Monitor the company's ability to achieve its Q4 tariff mitigation targets and hit the 25% AI PC mix goal, as these are crucial for restoring Personal Systems margins to the 5-7% target range and improving overall profitability.
• Consider the current valuation, highlighted by a P/E of 9.81 and a 4.26% dividend yield, alongside InvestingPro's 'undervalued' assessment, as potential entry points for long-term investors, while acknowledging the revised lower free cash flow guidance for FY2025 and the execution risks associated with supply chain shifts and tariff pressures.