HPQ HP Inc

By Steven Russolillo 

The new HP Inc. is still facing the same old problems.

The printer and personal-computer company is set to report its first earnings report without the storage and enterprise-computing business on its books, after the company split in two last year.

Unfortunately, results for HP will likely show many of the same growth problems that have hurt it for years. Those aren't likely to go away anytime soon.

Analysts polled by FactSet expect fiscal first-quarter earnings of 36 cents a share, at the midpoint of the company's previously projected range of 33 cents to 38 cents. Revenue for the period ending in January is expected to fall slightly to approximately $12 billion.

The bad news doesn't stop there: In the combined company's prior quarterly earnings report, printing revenue fell 14%, commercial printer sales dropped 23%, and revenue for printer supplies declined 10%. Those downbeat trends will probably continue.

Meanwhile, the personal-computer market isn't faring much better. Smartphone and tablet competition continues to take a toll on PC sales, which slumped last year to their lowest since 2007, according to International Data Corp. Not coincidentally, that was the year that Apple Inc. launched the iPhone.

The bull case for HP centers on historically strong cash flow. But even that took a hit in fiscal 2015 due to split-related costs, falling to its lowest since 2004. And in November, HP predicted free cash flow of $2.4 billion to $2.7 billion in fiscal 2016, below the prior year's level.

HP has fallen 15% since the Nov. 1 split. And that is despite a surprise rally in the three weeks following the split. The overall performance is worse than Hewlett Packard Enterprise's 11% decline over the same time. Both stocks have also trailed the technology-heavy Nasdaq Composite and the broad S&P 500.

HP shares appear cheap, fetching about 6.5 times forward earnings over the next 12 months. That is far lower than other tech behemoths such as Apple, Microsoft Corp. and International Business Machines Corp.

But HP is cheap for a reason. This print has paper jam written all over it.

(END) Dow Jones Newswires

February 23, 2016 15:51 ET (20:51 GMT)

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