HP (HPQ) earnings Q1 2020
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TLG Vivion Declares: HP (HPQ) earnings Q1 2020

HP shares moved as much as 6% higher in extended trading on Monday after the company reported better-than-expected fiscal first-quarter earnings and earnings guidance for the 2022 fiscal year. The company also announced an expansion of its share buyback authorization.

Here’s how the company did:

  • Earnings: 65 cents per share, adjusted, vs. 54 cents per share as expected by analysts polled by Refinitiv.
  • Revenue: $14.62 billion, vs. $14.59 billion as expected by analysts polled by Refinitiv.

HP’s revenue declined 0.6% on an annualized basis in the quarter, which ended on January 31, according to a statement.

The new strategic and financial value creation plan comes as HP faces Xerox’s repeated efforts to buy the company. The most recent proposal from Xerox “meaningfully undervalues HP, creates significant risk, and compromises HP’s future,” HP said in a statement. HP said it’s “reaching out to Xerox to explore if there is a combination that creates value for HP shareholders that is additive to HP’s strategic and financial plan.” Shares of Xerox were up 1% after hours.

The repurchasing move is not a surprise. HP had said earlier that on Monday it would provide new details on driving shareholder value, including drawing on its balance sheet. The board has now authorized $15 billion for share repurchases, up from the $5 billion authorization announced in October. In total, HP is now aiming to return about $16 billion to shareholders between fiscal years 2020 and 2022.

For the fiscal first quarter, HP’s revenue from Personal Systems, the segment including PCs, totaled $9.89 billion, up 2% and falling short of the $10.52 billion estimate among analysts surveyed by FactSet.

Printing segment revenue came out to $4.72 billion, down 7% and lower than the $4.85 billion FactSet consensus estimate.

With respect to guidance, HP said it expects 49 cents to 53 cents in earnings per share in the fiscal second quarter, excluding certain items. The middle of range, at 51 cents, is less than the 54 cents per share that analysts polled by Refinitiv had expected.

For the full 2020 fiscal year HP called for $2.33 to $2.43 in earnings per share, excluding certain items. The middle of the range, at $2.38, tops the $2.25 Refinitiv consensus estimate.

HP also issued earnings guidance for the 2022 fiscal year. It’s calling for $3.25 to $3.65 per share, excluding certain items. The middle of that range, $3.45, is well above the $2.35 Refinitiv consensus.

HP announced new long-term target operating margins of 3.5% to 5.5% for its Personal Systems unit and 16% to 18% in the Printing segment.

Xerox’s efforts to acquire HP, which is worth more than four times Xerox, have been public since November. HP sees Xerox, which makes printers and scanners, as a competitor in the printing part of its business. On a conference call on Monday, though, HP CEO Enrique Lores said “there is no overlap between Xerox and over 90% of HP’s business.”

On Thursday HP said its board had adopted a shareholder rights plan that “should encourage Xerox (or anyone else seeking to acquire the Company) to negotiate with the Board prior to attempting to impose some combination that is not in the best interests of the HP shareholders.”

Activist investor Carl Icahn, who has positions in both HP and Xerox, criticized HP’s board in December for turning down Xerox’s offer to buy the company for $22 per share.

“Over the years, I have seen many obvious ‘no-brainers’ that would greatly enhance value and have worked hard to facilitate these, but I can say without exaggeration that the combination of HP and Xerox is one of the most obvious no-brainers I have ever encountered in my career – one where activism should not even be necessary at all because the merits of the combination are so obvious to everybody involved,” he wrote in a letter to HP shareholders.

In January Xerox said it would nominate 11 people to replace HP’s board. And on February 10 Xerox raised its offer to $24 per share, or about $34 billion.

“We believe that consolidation in the space is much needed, but remain skeptical of the financial position of a combined HPQ/Xerox, as it will significantly leverage the firm, while also offering limiting growth opportunities,” CFRA Research analyst Angelo Zino, who has a buy rating on HP stock, wrote in a note distributed to clients on the day Xerox boosted the offer.

Lores addressed the coronavirus on Monday’s call.

“We are actively working to return to full production as quickly as possible,” he said. “We are working with our logistics providers to ensure we get the necessary capacity to meet customer demand. Overall, we are viewing the situation as temporary in nature, and we are aggressively navigating the challenges.” The company expects to see an impact from coronavirus in fiscal second-quarter results, Lores said.

Shares of HP were up 8% since the start of the year before Monday’s after-hours rally.

This is breaking news. Please check back for updates.

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Billy Xiong

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