Why Is HP (HPQ) Down 5.3% Since Last Earnings Report?

HP (HPQ) reported Q3 fiscal 2025 earnings of 75 cents per share, matching estimates, and revenues of $13.93 billion, which slightly missed consensus. While Personal Systems revenue grew 6% year-over-year, the Printing segment declined 4%, leading to a 110 basis point contraction in overall non-GAAP operating margin. Post-earnings, HPQ shares dropped 5.3%, underperforming the S&P 500, with the company forecasting Q4 FY25 non-GAAP EPS between 87 and 97 cents and full-year free cash flow of $2.6-$3.0 billion.

Analysis

HP's third-quarter fiscal 2025 results revealed a mixed operational performance, contributing to a 5.3% share price decline in the month following the report, underperforming the S&P 500. While the company met EPS estimates at $0.75, it posted a marginal revenue miss at $13.93 billion, despite a year-over-year increase from $13.52 billion. The top-line performance was driven by a tale of two segments: the larger Personal Systems (PS) division, comprising 71% of revenue, grew sales by 6% to $9.9 billion on the back of a 5% increase in PC unit shipments. Conversely, the Printing division's revenue fell 4% to $4.0 billion, impacted by broad weakness in hardware units (-9%) and supplies (-4%). A significant concern for investors is margin compression; despite PS revenue growth, its operating margin contracted by 120 basis points to 5.4%, leading to a 110 basis point decline in the overall corporate non-GAAP operating margin to 7.1%. On a positive note, HP generated strong free cash flow of $1.47 billion and guided for $2.6-$3.0 billion for the full fiscal year, while returning $400 million to shareholders. The market's cautious stance is reflected in the flat trend of analyst estimate revisions and a Zacks Rank #3 (Hold), suggesting expectations for in-line performance in the near term.

Key Decisions for Investors

• Investors should weigh the 6% revenue growth in the dominant Personal Systems division against the structural 4% decline in the Printing segment and the company-wide operating margin contraction of 110 basis points, which explains the recent share price underperformance.
• It is critical to monitor upcoming reports for a recovery in the Personal Systems segment's operating margin, which contracted to 5.4%, and any signs of stabilization in the Printing segment's hardware unit sales, which were down 9%.
• The company's strong free cash flow generation, guided at $2.6-$3.0 billion for FY25, and consistent capital returns provide fundamental support for the valuation, potentially mitigating downside risk from operational headwinds.