HP Projects Strong Profit After Spurning Xerox Takeover Bid

(Bloomberg) -- HP Inc. gave a profit forecast that topped Wall Street estimates, projecting optimism that a broad restructuring will pay off while spurning a takeover offer from Xerox Holdings Corp.

Profit, excluding some items, will be $2.24 a share to $2.32 a share in fiscal 2020, the Palo Alto, California-based company said Tuesday in a statement. Analysts, on average, estimated $2.24, according to data compiled by Bloomberg. In the fiscal fourth quarter, the hardware maker’s sales and adjusted profit topped analysts’ projections.

HP’s earnings report comes in the midst of an increasingly contentious debate with Xerox about a blockbuster combination that would reshape the printing industry. Xerox said Tuesday it plans to go directly to HP’s shareholders, adding that HP’s refusal to engage on the $22-a-share offer “defies logic.”

On Sunday, HP reiterated its stance that it has many options to create value for shareholders, other than accepting the offer valued at more than $33 billion in cash and stock, and wasn’t “dependent on a Xerox combination.”

“The results show that our strategy is working and we’re driving both short- and long-term value creation,” Chief Executive Officer Enrique Lores said in a press briefing.

Fiscal fourth-quarter revenue came in at $15.4 billion, little changed from a year ago, and ahead of analysts’ average estimate of $15.3 billion.

Shares gained about 2.5% in extended trading after the results were announced. Earlier, the stock closed at $20.06 in New York and has declined about 2% this year.

Xerox has made a move for HP to consolidate the printing business at a time when both companies are stumbling. HP’s printing division, a major source of profit, has seen falling sales because of weaker demand for ink supplies. HP has announced a major restructuring to stabilize the company, which could result in as much as a 16% reduction of its workforce by the end of fiscal 2022.

“Related to Xerox, I feel like we have seen this movie before when Carl Icahn meddled with Dell in a similar way,” said Patrick Moorhead, an analyst at Moor Insights & Strategy. “Xerox is a third of the size of HP, has been steadily declining in revenue, is running out of options, and needs HP more than HP needs it.”

In the period ended Oct. 31, sales in the printing division fell 6% to $4.98 billion, with ink supplies dropping 7%. Consumer revenue declined 10% and commercial sales decreased 2%.

“We continue to lead in a tough market,” Lores said of the printing industry. “We continue to grow in the categories that we consider important,” such as managed print services and instant-ink delivery services.

Revenue from personal computers increased 4% to $10.4 billion, with 8% growth in commercial revenue offsetting a 4% decline in consumer sales. Corporate clients are upgrading their computers to adopt Microsoft Corp.’s Windows 10 operating system.

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, Andrew Pollack, Alistair Barr

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