HP Inc's stock (NYSE: HPQ) has been an underperformer this year, down 17.22% YTD heading in to the company's fiscal Q2 2025 earnings release, after market close. The stock’s performance reflects ongoing investor concern surrounding the company's profitability outlook amid a challenging macroeconomic environment and recent profit forecast reductions.
Analysts are projecting earnings per share (EPS) of $0.75 for the quarter, a decline of almost 10% on the $0.83 from the same quarter last year. Revenue is expected to grown mildly by 1.38% Y/Y to $13.71B.
Recent Challenges Weigh on Sentiment
HP's recent financial performance has been mixed. While the company beat revenue expectations in the most recent quarter, reporting $13.22 billion against an anticipated $13.14 billion, adjusted EPS fell short at $0.71 versus the expected $0.80.
More concerning was the company’s decision to reduce its annual profit forecast, citing anticipated moderation in the PC market and ongoing global economic volatility, including inflationary pressures linked to U.S. tariffs.
This revision, which cut the adjusted EPS forecast from $3.45-$3.75 to $3.00-$3.30, triggered a significant 14% drop in HP's shares in after-hours trading.
This followed a similar pattern to round out FY24, where revenue aligned with estimates at $13.5 billion, but adjusted EPS of $0.74 slightly missed the consensus of $0.75. The full-year EPS guidance provided at that time, now revised downwards, has further eroded investor confidence.
Bull Case:
- Cost Optimization: HP has demonstrated a commitment to cost-cutting measures, which could potentially offset some of the revenue headwinds and improve profitability.
- Dividend Yield: HP offers a relatively attractive dividend yield, which could appeal to income-seeking investors and provide some downside protection.
- Innovation: Continued investment in new technologies and product development could lead to future growth opportunities.
- PC Market Rebound: The projected moderation in the PC market may prove to be overstated, leading to stronger than expected sales.
Bear Case:
- Economic Headwinds: Ongoing global economic volatility, including inflationary pressures and potential recessionary risks, could further dampen demand for HP's products and services.
- Profit Margin Pressure: Increased competition and rising input costs could squeeze profit margins, limiting HP's ability to generate earnings growth.
- Executive Compensation: Continued high executive compensation packages despite declining revenue and profitability may fuel investor discontent.
- Planned Obsolescence Allegations: The allegations of planned obsolescence could damage HP's reputation and lead to legal challenges.
While the company faces significant challenges, including a moderating PC market and global economic uncertainty, its established market position, consistent free cash flow generation, and potential for innovation should not be overlooked. Whether HP can successfully navigate these headwinds and deliver a positive surprise remains to be seen. Recently, the company has missed on EPS in each of the past four prints.
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