Key Takeaways
- HP delivered Q2 revenue of $14.4 billion, marking a 9% year-over-year increase and surpassing the $14.07 billion analyst forecast.
- The company posted adjusted earnings per share of $0.86, significantly exceeding the consensus range of $0.71–$0.72, fueled by robust AI PC sales.
- AI-enabled PCs now represent 44% of HP’s total PC sales, climbing from 35% in the previous quarter, with projections targeting 60–70% penetration next fiscal year.
- Full-year adjusted EPS guidance saw a $0.10 reduction at the high end to $2.90–$3.10, attributed to escalating memory chip costs anticipated to peak in Q4.
- JPMorgan upgraded its price target to $26, though analyst consensus maintains a “Reduce” rating with an average target of $22.17.
HP unveiled fiscal second-quarter results showcasing revenue of $14.4 billion, representing a 9% climb from the year-ago period and comfortably exceeding Wall Street’s $14.07 billion projection. The company’s adjusted earnings per share reached $0.86, decisively topping the $0.72 consensus by a substantial margin. Shares surged as much as 15% in extended trading immediately following the announcement.
The Personal Systems division powered the quarterly performance, generating $10.2 billion in revenue with a 13% year-over-year gain. Commercial PC sales increased 14%, while consumer PC revenue advanced 10%. Interestingly, overall PC unit shipments declined 7%, indicating that revenue growth stemmed from elevated average selling prices rather than volume expansion.
The Printing division maintained steady performance at $4.2 billion in revenue. However, operating margin in this segment contracted to 18.3% compared to 19.2% in the corresponding period last year.
Demand for AI-capable computers emerged as a significant growth catalyst this quarter. The proportion of AI-enabled systems in HP’s PC portfolio expanded to 44%, up from above 35% in the preceding quarter. Management projects this figure will climb to 60–70% during the upcoming fiscal year and exceed 70% by fiscal 2028.
On a generally accepted accounting principles basis, diluted earnings per share of $0.49 missed HP’s previous guidance range of $0.52 to $0.58. This variance stemmed primarily from $365 million in restructuring expenses and related charges.
Memory Chip Supply Constraints Emerge
The technology giant is confronting tightening memory chip availability, as surging data center demand drives component pricing upward. CFO Karen Parkhill detailed multiple strategies HP is implementing: redesigning product configurations, securing more cost-effective components, emphasizing higher-margin product lines, and implementing price adjustments corresponding to elevated commodity expenses.
Management anticipates memory chip constraints will pressure operating margins to their lowest point in the fourth quarter, with recovery expected as fiscal 2027 begins.
Interim CEO Bruce Broussard stated: “During the second quarter, we continued executing our future of work strategy through intelligent devices, edge AI and connected experiences while navigating rising commodity costs.”
Annual Profit Outlook Adjusted Lower
HP revised its full-year adjusted EPS forecast to $2.90–$3.10, reducing the upper bound by $0.10. Under GAAP accounting, annual earnings guidance dropped to $2.15–$2.45 per share from the prior range of $2.47–$2.77. The company also anticipates full-year free cash flow between $2.8 billion and $3.0 billion.
For the third quarter, HP is targeting adjusted EPS of $0.61–$0.71.
Multiple Wall Street firms revised their price objectives following the earnings release. JPMorgan elevated its target from $22 to $26 while keeping a neutral stance. TD Cowen similarly increased its target to $26 with a hold rating. Barclays set a $19 target with an underweight recommendation, and Wells Fargo established a $20 target, also with an underweight rating.
Despite the earnings outperformance, the stock carries a consensus “Reduce” rating with an average price target of $22.17, per MarketBeat data. The analyst community includes two strong buy ratings, ten hold recommendations, and five sell ratings.
HPQ was trading at $24.92 prior to the earnings announcement, within a 12-month trading range spanning $17.56 to $29.55.
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