HP maintains cash-flow outlook even as PC demand craters

HP maintained its annual guidance for cash flow even as it grapples with slumping PC demand, a sign it expects a rebound later in the year.

The company stuck by its fiscal year outlook of about US$3.25 billion in free cash flow on Tuesday (Feb 28), staying above an average analyst estimate of US$3.09 billion. It also reaffirmed its previous guidance that adjusted profit will be between US$3.20 and US$3.60 a share, better than analysts have projected.

The outlook gave hope that HP can weather a downturn afflicting the PC industry. After a sales boom fuelled by remote work during the pandemic, HP has been struggling with plummeting demand for computers. Preliminary data from research firm IDC shows that PC shipments dropped sharply in the fourth quarter of 2022. Among major suppliers, HP saw one of the steepest declines, according to IDC.

Fiscal first-quarter revenue fell 19 per cent to US$13.8 billion, the company said. Analysts projected US$14.1 billion on average. The shortfall was caused by a steeper decline in computer sales than expected, especially in the consumer market.

The shares gained more than 2 per cent in extended trading after the report was released, bolstered by optimism that the slump is easing. They had closed at US$29.52 in New York on Tuesday.

The forecast assumes that PC demand and profitability will both improve throughout the fiscal year, chief executive officer Enrique Lores said in an interview. The Palo Alto, California-based company also will continue investing in growth segments such as subscription services, he said.

In November, HP said it would eliminate as many as 6,000 jobs and pare back its real estate footprint to manage costs. The plan is having an “immediate impact”, Lores said in the statement on Tuesday.

Excluding some items, profit was 75 US cents a share in the first quarter, while analysts expected 74 US cents. In the fiscal second quarter, adjusted profit will be between 73 and 83 US cents. The midpoint of the range is above predictions as well.

HP’s higher mix of commercial PCs initially shielded it from the plunging consumer market, but the weakness has spread. Among corporate customers, HP has seen a “slowdown of orders as companies have been more careful of how they manage their budgets”, Lores said.

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Consumer PC revenue slipped 36 per cent in the quarter, while commercial revenue declined 18 per cent. Printing revenue slipped 5 per cent to US$4.6 billion, slightly better than estimates.

Despite an easing dollar, currency headwinds continued to weigh on growth in the quarter. Currency will likely hurt sales expansion by about three percentage points in the full year, chief financial officer Marie Myers said in an interview. BLOOMBERG