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With the economic slowdown extending into the new fiscal year, the technology sector continues to be impacted by IT spending. The latest quarterly report from PC maker HP Inc. (NYSE: HPQ ) — marked by lower sales and depressed margins — shows the challenges facing the industry.
This week, shares of the Palo Alto-based IT hardware company traded below last year’s peak and the downward trend continued after it reported disappointing numbers for the first quarter. With an unfavorable demand scenario, shareholders will have to wait for some time before getting better results. It makes no sense not to sell the stock now as HP’s initiatives to stay relevant in the IT market promise to pay off. The time to buy is also not ripe, because of the uncertainty.
Future Ready
Management is optimistic about the business effectively navigating the current headwinds, supported by the recently announced Future Ready plan that outlines strategic long-term investments while reducing costs. It expects the second half of the year to be stronger than the first half.
Meanwhile, cost cuts, combined with a recovery in sales in China where the market is quickly returning to pre-COVID levels, should boost profits in the near term. The company posted second-quarter earnings above estimates and maintained full-year guidance.
HP Inc. Earnings Call Transcript. Q1 2023
“The Future Ready plan that we shared with you last quarter is already having an impact. As a reminder, the plan has two main goals. One is to reduce the cost structure. The second is to continue to evaluate and optimize the overall portfolio and develop the operational capabilities necessary to generate sustainable growth long term. We are making clear progress in both areas. In terms of costs, our team has done a good job of reducing costs and driving efficiency,” said HP CEO Enrique Lores on the earnings call.
Financial Performance
First-quarter revenue fell 19% year over year to $13.8 billion, which translated into a sharp drop in adjusted earnings to $0.75 per share. The Personal Systems and Printing segments contracted during the quarter, but the latter performed better, especially in the commercial segment. However, net profit beat market projections by cents, while the top line missed estimates. The beat is significant because the bottom line has either missed or matched the estimate at the end of three quarters.
Stocks traded lower on Wednesday, reflecting muted investor sentiment. It has been below its 52-week moving average, and has lost about 20% over the past twelve months.
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