The stock of HP (NYSE: HPQ) lost 5.92% or $1.12 to close at $17.81 on Friday despite reporting impressive Q3 results. Notably, the company also upwardly revised its non-GAAP earnings outlook for fiscal 2019. The main reason for the decline is the sudden departure (effective November 1) of CEO Dion Weisler due to a “family health matter.” Enrique Lores, current president of the imaging, printing, and solutions business, has been appointed as the new CEO of the company.
The Palo Alto, the California-based company, reported fiscal 2019 third-quarter revenues of $14.603 billion, compared with $14.586 billion in the comparable quarter last year.
For the quarter ended July 2019, net earnings were $1.179 billion, or $0.78 per share, up from $880 million, or $0.54 per share, in the year-ago period. Excluding charges, non-GAAP earnings in the recent quarter were $880 million, or $0.58 per share, compared with $840 million, or $0.52 per share, in the corresponding quarter last year. On average, the Wall Street analysts anticipated HP to report earnings of $0.55 per share on revenues of $14.62 billion.
Weakness in the Printing division was offset by strong growth in Personal Systems revenues. Personal Systems, which represented 66.4% of net revenues, were $9.70 billion, an increase of 3% on a y-o-y basis. Printing business, representing 33.6% of net revenues, declined 5% year over year to $4.9 billion.
Furthermore, commercial revenues grew 10%, but consumer revenues declined 11%. Total units sold increased 5% on a y-o-y basis. While notebooks recorded a 2% increase in unit sales, desktop unit sales increased 11% from last year’s quarter.
Region-wise, on a constant currency basis, revenues from Americas, representing 45% of net revenues, and EMEA, reflecting 33% of net revenues, were unchanged. Asia-Pacific and Japan regions posted growth of 11% and 22% y-o-y, respectively.
During the quarter, the company launched the EliteBook x360 series, which includes convertibles that can last up to 24 hours on battery. The latest EliteBook and ZBook business laptops are pre-loaded with a malware-detection system called HP Sure Sense.
HP was able to leverage its differentiated technology and IP to improve its A3 market share to 10.3% in the quarter. The gross margin was 19.9% in 3Q19, up 150 basis points on a y-o-y basis. The company ended the third quarter with cash and cash equivalents of $4.90 billion compared with $3.90 billion in the prior quarter.
During the quarter, HP generated a cash flow of $2.30 billion from operational activities and a free cash flow of $2.20 billion. The company also returned $800 million to shareholders through stock repurchases ($533 million) and cash dividends ($240 million).
Considering the improving market share across the printer and PC businesses, HP upwardly revised its non-GAAP earnings outlook for fiscal 2019. The management is also upbeat about the HP ENVY Series launched recently. The company now anticipates FY19 non-GAAP earnings of between $2.18 and $2.22 per share, up from the earlier guidance of $2.14 to $2.21 per share. The Zacks Consensus estimate currently stands at $2.17 per share.
For 4Q 2019, HP expects non-GAAP earnings in the range of $0.55 to $0.59 per share. The Zacks Consensus Estimate is $0.59 per share for the final quarter of fiscal 2019.
The company anticipates returning roughly 75% of free cash flow to its shareholders in fiscal 2019.
Regarding the change of CEO, the company has stated that Weisler will remain with the company until January 2020 to assist in the smooth transition of power to Lores, a 30 year veteran of HP. Lores headed the split with HPE.
The solid results and upwardly revised FY 2019 earnings outlook is expected to turn the stock bullish in the coming week.
The historical price chart indicates that the stock has bounced off the support at 17. The stochastic indicator is near the oversold region. Therefore, we can look forward to a bullish trend reversal in the week ahead.
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