The Stock of HP Tumbles After Mixed Results and a Cautious Outlook

HP Inc.'s stock faced a notable decline of 10.7% during the extended trading session on Tuesday, following the release of the company's earnings report that presented a blend of outcomes and a circumspect future projection.

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HP Chief Executive, Enrique Lores, articulated that although they anticipate further sequential growth in the upcoming fourth quarter, the external economic landscape has not advanced as swiftly as initially projected. Consequently, the company is adjusting its expectations in response to this scenario.

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In terms of guidance for the fourth quarter, HP has provided a range of adjusted earnings between 85 cents and 97 cents per share. This projection diverges from the consensus forecast of 95 cents per share established by analysts polled by FactSet. Lores underlined that the recuperation of PC pricing has been less expedient than envisioned within what he characterized as a challenging economic environment. However, he remains optimistic about the forthcoming introduction of AI products in late 2024, which he believes will have a revitalizing effect on both consumer and business sales.

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In the fiscal third quarter report, HP disclosed net earnings of $766 million, corresponding to 76 cents per share, in contrast to the prior-year quarter's net earnings of $1.12 billion, equivalent to $1.08 per share. After adjustments, the earnings per share stood at 86 cents.

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Concurrently, revenue exhibited a decline of 10% amounting to $13.2 billion, in comparison to the previous year's figure of $14.65 billion. This quarter marks the third consecutive instance in which HP fell short of analysts' revenue forecasts. FactSet's surveyed analysts had anticipated average net earnings of 86 cents per share, coupled with revenue of $13.4 billion.

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While HP's shares have recorded a 17% ascent over the course of the current year, it is important to note that the broader S&P 500 index (SPX) has also registered a comparable gain of 17%.

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Analyst Daniel Newman, who serves as the CEO of the Futurum Group, highlighted the significance of HP's results in illuminating the divergence between the field of AI and other facets of the tech industry. Newman commented through email, underscoring that while HP achieved commendable sequential progress, it is still navigating through a broader macroeconomic softness. He anticipates that this softness will persist as technology investment continues to pivot toward AI, with the process of monetizing on-device AI indicating a prolonged journey towards clarity.

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