Key Takeaways
- HP’s fiscal Q2 revenue reached $14.4 billion, representing a 9% annual increase and surpassing Wall Street’s $14.07 billion projection.
- The company delivered adjusted earnings per share of $0.86, significantly exceeding analyst forecasts of $0.71–$0.72, fueled by robust AI PC sales.
- AI-enabled computers now represent 44% of HP’s total PC sales mix, climbing from 35% in the previous quarter, with projections to hit 60–70% in the coming fiscal year.
- Management reduced the upper end of annual adjusted EPS forecasts by $0.10 to a range of $2.90–$3.10, attributing the change to escalating memory component expenses anticipated to reach their highest point in Q4.
- JPMorgan upgraded its price objective to $26, though overall analyst sentiment remains cautious with a consensus “Reduce” recommendation and a $22.17 average target.
HP delivered fiscal second-quarter revenue of $14.4 billion, marking a 9% year-over-year improvement that exceeded analyst projections of $14.07 billion. The company’s adjusted earnings per share of $0.86 handily beat the consensus forecast of $0.72. Following the announcement, shares surged as much as 15% during extended trading hours.
The Personal Systems division powered much of the quarterly performance, generating $10.2 billion in revenue—a 13% year-over-year gain. The commercial PC category increased 14%, while consumer PC sales advanced 10%. Interestingly, overall PC shipment volumes declined 7%, indicating that elevated average selling prices, rather than increased unit sales, fueled the revenue expansion.
The Printing division maintained steady revenue at $4.2 billion. However, operating margins in this segment contracted to 18.3% from the prior year’s 19.2%.
Demand for AI-capable personal computers provided significant momentum during the quarter. These advanced machines now account for 44% of HP’s PC portfolio, up from just over 35% in the preceding quarter. The company anticipates this proportion will climb to 60–70% over the next fiscal year and exceed 70% by fiscal 2028.
On a GAAP basis, diluted earnings per share of $0.49 came in below HP’s previously issued guidance range of $0.52 to $0.58. This variance stemmed primarily from $365 million in restructuring and related expenses.
Rising Memory Prices Present Challenges
The company faces mounting pressure from memory chip supply constraints, as data center demand continues driving component prices upward. CFO Karen Parkhill detailed HP‘s multi-pronged response strategy: redesigning product configurations, securing more cost-effective components, emphasizing higher-margin products, and implementing price adjustments that reflect rising commodity expenses.
Management anticipates memory chip shortages will compress operating margins to their lowest levels in the fourth quarter, with conditions expected to improve 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 Outlook Adjusted Downward
HP revised its full-year adjusted EPS guidance downward to $2.90–$3.10, reducing the upper boundary by $0.10. For GAAP earnings, the annual outlook decreased to $2.15–$2.45 per share from the prior range of $2.47–$2.77. The company also forecasts full-year free cash flow between $2.8 billion and $3.0 billion.
Looking to the third quarter, HP projects adjusted earnings per share in the $0.61–$0.71 range.
Multiple Wall Street firms adjusted their price targets 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 rating, and Wells Fargo established a $20 target, also with an underweight designation.
Despite the earnings outperformance, analyst consensus remains at “Reduce” with an average price target of $22.17, based on MarketBeat tracking. The stock currently holds two strong buy ratings, ten hold recommendations, and five sell ratings.
HPQ shares were trading at $24.92 prior to the earnings announcement, within a 12-month trading range spanning $17.56 to $29.55.
