HPQ HP Inc

By Don Clark 

HP Inc. met Wall Street's modest expectations in its first quarter as an independent company, despite signs that weak conditions in printing and personal computers aren't improving quickly.

The Palo Alto, Calif., company said earnings from continuing operations declined 16% in the first fiscal quarter ended in January, while revenue fell 12% from the year-earlier period.

HP projected profit for the current quarter with a midpoint slightly lower than analysts estimated, while reaffirming the company's guidance for the full year.

"What I'm most pleased about is we delivered on our plan," Dion Weisler, HP's chief executive, said in an interview.

HP's stock gained a penny in after-hours trading after rising 50 cents to $10.81 at 4 p.m. in New York trading. It released results after 4 p.m. The company is composed of a set of former businesses of Hewlett-Packard Co., which broke up in early November into two publicly held companies.

Mr. Weisler has cautioned that printers and PCs face a series of headwinds that won't go away soon. In printing, which accounts for about 80% of the company's profits, sales of both hardware and ink have been hurt by changing habits of computer users and competition--particularly rivals in Japan whose products have gained a pricing edge on currency shifts.

In the first quarter, HP said total printing revenue declined 17%. Its revenue from ink and other supplies was down 14% and hardware unit sales were off 20%.

In PCs, HP and rivals continue to suffer from a gradual slide in demand since spending began shifting to smartphones and tablets several years ago. The company, the No. 2 player in the market behind Lenovo Group Ltd., said its PC revenue declined 13% in the quarter.

HP said the strong U.S. dollar was a big factor in its results. On a constant currency basis, the company said total revenue was off only 5%.

Mr. Weisler joined HP in 2012 after stints at rivals Lenovo and Acer Inc. He said HP has gained market share in PCs used by companies, while walking away from "low-calorie" sales deals that don't generate much profit because of low pricing.

More broadly, he argues HP can return to growth with the aid of innovative products. One attempt emerged this week when the company introduced its Elite X3, a big-screen smartphone that can be plugged into a cradle and connected to a keyboard and display to act like a PC.

"You can't cut your way to glory," Mr. Weisler said. "You have to innovate."

Other new initiatives include a move into 3-D printing and machines used to print large signs for advertising, Mr. Weisler said. He predicted that HP's business in ink and other printing supplies should stabilize by the end of 2017.

Reaching that goal will be a key factor shaping HP's prospects, said Toni Sacconaghi, an analyst at Sanford C. Bernstein. Another important factor, he said, will be whether the company can resume generating cash at the rate investors expected, after a slight slowdown in the first period.

Many investors are looking at the company for its ability to keep churning out dividends more than growth. "That's where we are still kind of hanging our hats," said Daniel Morgan, a senior portfolio manager at Synovus Trust Co., which holds HP shares.

HP's first-quarter net income reflects the divestiture of the business-oriented operations that now constitute Hewlett Packard Enterprise Co., a separate publicly held company. Profit on that basis for the period ended Jan. 31 came to $592 million, or 33 cents a share, down sharply from the year-earlier figure of $1.37 billion, or 73 cents a share.

Revenue declined to $12.25 billion from $13.86 billion. The company hadn't previously provided figures for the year-earlier period.

For continuing operations, HP said earnings on an adjusted basis that excludes restructuring charges came to 36 cents a share, compared with 41 cents for the same quarter a year ago. Analysts on that basis had expected earnings of 36 cents per share on revenue of $12.2 billion, according to Thomson Reuters.

For the second fiscal quarter ending in April, HP estimated adjusted per-share earnings of between 35 cents and 40 cents a share. Average analysts estimates were 39 cents per share. The company didn't project revenue.

HP Enterprise, the second public company formed by the breakup of the former Hewlett-Packard, is due to report its first quarterly results on March 3.

Write to Don Clark at don.clark@wsj.com

(END) Dow Jones Newswires

February 24, 2016 19:13 ET (00:13 GMT)

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