HP Raises Profit Forecast as High-End PCs Lure Buyers

(Bloomberg) -- HP Inc., the world’s largest personal-computer maker, beat analysts’ revenue estimates and raised profit forecasts on strong sales of higher-end products in a stagnating industry.

Profit excluding some items may reach 49 cents to 52 cents a share in the current quarter, according to a statement Tuesday, mostly higher than the average analyst projection of 49 cents. HP also raised adjusted profit estimates for the 2018 fiscal year, to a range of $1.97 to $2.02 a share. The previous range was $1.90 to $2, and analysts were looking for $1.97.

Under Chief Executive Officer Dion Weisler, HP has surprised Wall Street and the technology industry with consistent growth in the midst of waning demand for PCs. The company has gained market share with more-desirable, higher-end computers, including gaming machines that can be more profitable. The printer business also helped power HP’s profit, as the company sells more-expensive devices to corporate clients after integrating Samsung Electronics Co.’s unit.

HP also projected full-year cash flow of $3.7 billion, up from a previous forecast of $3 billion. HP shares were little changed in extended trading after closing at $21.30 in New York.

“Our reinvention strategy is paying off well,” Weisler said in a phone briefing. “We have double-digit revenue growth, double-digit growth in earnings per share and nearly a billion dollars in free cash flow.”

HP revenue in the period ending April 30 climbed 13 percent to $14 billion -- the seventh-consecutive quarter of sales growth. Analysts had anticipated $13.6 billion, according to data compiled by Bloomberg. Profit excluding some costs reached 48 cents a share, matching the average analyst estimate.

The Palo Alto, California-based company will expand a reorganization by cutting about 1 percent of its workforce through the end of the 2019 fiscal year, a spokeswoman said. HP had 49,000 staff as of Oct. 31. The original plan, started in the 2017 fiscal year, aimed to cut 3,000 to 4,000 employees, and the latest moves will bring further reductions.

“We expect the restructuring costs to increase by $150 million to $200 million,” Chief Financial Officer Cathie Lesjak said on a conference call with analysts. “This includes both labor and non-labor related action.”

HP’s personal-systems division, which includes its computer business, notched sales of $8.76 billion in the three months that ended April 30, up 14 percent from a year before. This includes everything from cheap Chromebooks to multi-thousand-dollar gaming and professional-grade PCs. The company announced plans to battle Apple Inc.’s iPad Pro last month with a tablet powered by Google’s Chrome operating system.

The printer division posted sales of $5.2 billion in the fiscal first quarter, an 11 percent increase. The company burnished this unit with higher-end offerings pitched at corporate clients. It’s also sought to bolster ink sales -- including by offering a subscription model -- which has boosted profit. The unit’s margins might be crimped by higher component costs, however, including rising memory chip prices, and resins and plastics, which are more expensive because of higher oil prices.

“HP continues to execute very well in a difficult personal computer market and is also executing surprisingly well in a very challenging and competitive printing market, which faces long-term headwinds,” David Heger, an analyst at Edward Jones & Co., wrote in a research note after the earnings report.

HP separated from the former Hewlett-Packard Co.’s data-center, software and services units, now known as Hewlett Packard Enterprise Co. In the years since the breakup, the consumer-facing PC and printer business has emerged as the more stable performer, despite expectations of narrower margins and a less-favorable industry environment. HP’s shares are up just over 15 percent in the last year, versus a gain of 5 percent for the corporate information-technology company.

HP announced that CFO Lesjak will cap a long career at HP by serving as interim COO before retiring early next year. Steve Fieler, the current treasurer, will ascend to the CFO role effective July 1. HP’s former COO, Jon Flaxman, died earlier this year.

“I’m getting up there in age and I’d like some time off after I help the company as the interim COO,” Lesjak, 59, said in a phone briefing. “I’ve had a great run at HP. I’m excited for my next journey.”

While consumers continue to shift toward smartphones, HP has bucked PC-industry doldrums. The company captured almost 23 percent of the market, shipping 13.7 million computers in the first quarter of the year, according to research firm IDC. HP grew 4.3 percent versus a year earlier, while the rest of the market flat-lined.

Still, analysts don’t expect this trend to last forever. While HP has said that it can continue to gain at the expense of PC rivals, it’s also sought to diversify by pitching products to large businesses. It sells office printers to corporate clients, and has used its recent acquisition of Samsung’s printer unit to enter the high-end copy-machine market where Xerox Corp. has excelled.

“We now have a combined team ready to address the $55 billion A3 [copier] market,” Weisler said. A3 paper is larger than the typical A4 size used by consumers. The bigger format is popular with commercial customers and often requires a special printer.

One promising corporate business sells printers that create labels and wrappers for consumer goods, including personalized wraps for Nutella spreads and Vespa scooters. HP has also invested heavily in 3-D printing, hoping the technology will give it a foothold in manufacturing. In coming months, HP plans to unveil new machines that print metal pieces.

The company has gotten into virtual-reality technology, too. That puts it in competition with Dell Technologies Inc.’s Alienware PC business in the lucrative gaming market. HP hopes to sell VR headsets to corporate customers, particularly to help workers in design-oriented industries including architecture and interior decorating.

To contact the reporter on this story: Nico Grant in San Francisco at ngrant20@bloomberg.net

To contact the editors responsible for this story: Jillian Ward at jward56@bloomberg.net, Alistair Barr, Molly Schuetz

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