HP Inc. down 13.2% after sales miss, guidance cut; Needham downgrades
Nov 25 2015, 13:31 ET | About: HP Inc. (HPQ) | By: Eric Jhonsa, SA News Editor
What used to be HP's PC/printing unit (NYSE:HPQ) has plunged below $13 after missing FQ4 sales estimates on the back of 14% Y/Y sales drops for both its PC and printing segments, and cutting its FY16 EPS guidance below consensus.
With printing op. income (-18% in FQ4 to $862M) well above PC segment op. income (-17% to $294M), printing headwinds are getting a lot of attention. On the earnings call (transcript), CEO Dion Weisler stated weak market demand and price pressure both weighed on printing. "We do not expect the landscape to improve in the near future and we will constantly assess how the market evolves."
He added forex is affecting pricing, and that lower printer price points are "attracting buyers that might have different usage patterns then we originally targeted." Printing supplies revenue stabilization now isn't expected until the end of 2017. The growth of online/mobile document and photo sharing has been a major printing headwind for some time.
Needham's David Rold has downgraded to Hold just three weeks after upgrading to Buy on account of a low valuation and 3%-4% dividend yield. "[A]s some of the valuation argument has played out, we believe further upside will require real improvement in the underlying business. The sharp turn of the Printing market (and delay in improvement that results) in just 2-3 months since last speaking with the Street warrants caution..."
Likewise, Goldman's Simona Jankowski (Neutral) is worried about soft supplies demand (sales -10% in FQ4). "While the company intends to reduce its cost base to partially offset market headwinds, we would need to see evidence of supplies stabilization before becoming meaningfully more positive on HP Inc.’s trajectory."
Deutsche's Sherri Scribner (Buy) remains bullish. "While we do not expect HPQ to be immune to [market] trends, we believe the company can outgrow its peers and end markets, driven by market share gains and a focus on profitable growth opportunities. A recovery in supplies is a key driver of free cash flow strength longer term, and while we were disappointed by the push out of this recovery to later in FY-17, we believe [management] has the right tools in place to stabilize this business."
