HP INC (HPQ)·Q1 2017 Earnings Summary

Executive Summary

• HP delivered Q1 FY2017 revenue of $12.7B (+4% Y/Y; +5% CC) and non-GAAP EPS of $0.38, at the high end of guidance; GAAP EPS was $0.36 .
• Personal Systems drove the upside: revenue +10% Y/Y, operating margin 3.8%; Printing stabilized with hardware units +6% Y/Y and supplies down just 2% CC, with segment OP margin 16.0% .
• Guidance: Q2 non-GAAP EPS $0.37–$0.40 (GAAP $0.32–$0.35); FY2017 non-GAAP EPS reiterated at $1.55–$1.65; GAAP EPS cut to $1.42–$1.52 due to accelerated Samsung integration charges .
• One analyst noted HP beat Street revenue by ~$0.8–$0.9B; management highlighted component cost headwinds and targeted unit placements and marketing in Printing as key drivers of the P&L mix .

What Went Well and What Went Wrong

• What Went Well

  • Personal Systems momentum: revenue +10% Y/Y on balanced growth across regions and product categories; HP cited “firing on all cylinders,” with record PC share (21.8% CQ4) and premium mix/ASPs supporting results .
  • Printing stabilization: hardware units +6% Y/Y; supplies down just 2% CC, consistent with plan to stabilize by FY2017 year-end; Printing OP margin at 16% despite FX and marketing investments .
  • Cash conversion: record negative 30-day cash conversion cycle; cash from operations of $767M, enabling $613M capital return in the quarter .

• What Went Wrong

  • Gross margin compression: company gross margin 17.7% (down 1.0 pt Y/Y), driven by component costs in Personal Systems and unfavorable mix .
  • Printing margin down Y/Y: 16% vs 17% a year ago as FX and increased marketing spend pressured rate, even as unit placement strategy improved long-term supplies economics .
  • Component cost/supply tightness: memory, batteries, and LCDs were cited as ongoing headwinds; HP is leveraging its balance sheet to secure supply .

Financial Results

Headline results

Segment performance

Printing revenue mix

Key operating KPIs

Estimates vs Actuals (S&P Global)

• S&P Global consensus data was unavailable at time of analysis (API rate-limited). One analyst on the call noted HPQ beat top-line estimates by ~$0.8–$0.9B, consistent with reported $12.7B revenue .

Guidance Changes

Additional outlook color:

• Personal Systems: pricing actions taken amid unfavorable FX and component cost inflation; expect Q2 PS revenue down more than normal seasonality after strong Q1 .
• Printing: supplies revenue performance expected to improve Y/Y vs Q1 in Q2; continued positive NPV unit placements .

Earnings Call Themes & Trends

Management Commentary

• “We’ve been able to accelerate our strategy…firing on all cylinders…net revenue up 4% to $12.7B, with double-digit growth in Personal Systems.” — CEO Dion Weisler .
• “We remain confident that supplies revenue in constant currency will stabilize by the end of fiscal 2017.” — CEO Dion Weisler .
• “Gross margin of 17.7% was down 1 point Y/Y, driven by segment mix and commodity costs in Personal Systems.” — CFO Cathie Lesjak .
• “Q2 2017 non-GAAP EPS is $0.37 to $0.40; full-year non-GAAP EPS remains $1.55 to $1.65; GAAP EPS $1.42 to $1.52 reflecting accelerated Samsung integration charges.” — CFO .
• “Free cash flow could be at the higher end of our $2.3B to $2.6B outlook for the year.” — CFO .

Q&A Highlights

• Revenue surprise context: An analyst noted HPQ “beat estimates by around $800–$900 million” on revenue; management attributed limited flow-through to investments/marketing, currency, and component costs .
• Printing margin debate: 16% OP rate due to currency and marketing to support supplies programs; range of 16–18% expected depending on unit placement mix .
• Component tightness: Memory, batteries, LCDs remain constrained; HP leveraging balance sheet, building strategic inventory .
• Channel inventory: PC channel inventory reduced sequentially; Print channel levels healthy and below tightened target range .
• Samsung integration charges: ~$150–$200M GAAP-only integration costs; timing pulled forward to FY2017, reducing FY2017 GAAP EPS but aiding FY2018 GAAP EPS .

Estimates Context

• S&P Global consensus for Q1 FY2017 EPS and revenue was unavailable due to data access limits; we therefore refrain from quantifying beats/misses versus consensus at this time. One sell-side analyst on the call indicated revenue exceeded expectations by ~$0.8–$0.9B .

Key Takeaways for Investors

• Personal Systems is the growth engine near term; strong innovation and premium mix are offsetting commodity inflation—monitor component costs and pricing discipline into Q2 .
• Printing is progressing toward supplies stabilization by FY2017 year-end; near-term margin variability reflects deliberate NPV-positive unit placements and marketing to support long-term supplies economics .
• GAAP EPS guide trimmed on accelerated Samsung integration charges; non-GAAP EPS unchanged—execution risk shifts to successful A3 integration in 2H17 .
• Cash generation and working capital discipline remain solid (CCC -30 days); management expects FCF toward the high end of the $2.3–$2.6B range, supporting buybacks/dividends .
• Watch Q2 seasonality: management flagged PS revenue down more than normal seasonality after a strong Q1; Printing supplies performance expected to improve Y/Y versus Q1 .
• Potential catalysts: continued PC share gains/premium mix, visible 3D printing traction, and A3 ramp; risks include component costs, FX, and demand elasticity to pricing actions .

Sources: Q1 FY2017 8-K and press release ; Q1 FY2017 earnings call transcript ; Prior quarters’ materials .