HP Inc. (NYSE:HPQ) stock fell Thursday as investors weighed shrinking Personal Systems margins, rising memory costs and higher PC prices against record quarterly revenue and stronger guidance.
Record Revenue, Higher Outlook
HP reported third-quarter revenue of $15.68 billion, up 12.5% year over year. The result beat the $14.34 billion estimate.
Adjusted earnings totaled 83 cents per share, including an 11-cent benefit from tariff refunds. That topped the 69-cent estimate.
HP expects fourth-quarter adjusted earnings of 69 cents to 79 cents per share, above the 67-cent estimate. It forecast GAAP earnings of 74 cents to 84 cents per share, compared with the 60-cent estimate.
The company raised its fiscal 2026 adjusted earnings forecast to $3.19 to $3.29 per share from $2.90 to $3.10. Analysts expected $3.04.
HP also raised its GAAP earnings outlook to $2.52 to $2.62 per share from $2.15 to $2.45. It increased its free cash flow forecast to $3 billion to $3.2 billion.
Memory Costs Pressure PC Margins
During Wednesday’s earnings conference call, investors focused on margin pressure in Personal Systems.
Chief Financial Officer Karen Parkhill said HP still expects fourth-quarter margins to mark the segment’s low point. Higher-cost memory and component inventory will continue to flow through the income statement.
Management expects input costs to rise into fiscal 2027, but at a slower pace. HP plans to use product redesigns, platform improvements and revised supplier contracts to support a margin recovery.
Higher prices have also pressured demand. Some customers delayed PC upgrades, though HP expects some demand to return as costs stabilize.
AI PCs Gain Ground
AI PCs accounted for 46% of HP’s third-quarter shipments. The company expects the share to reach 50% by the end of fiscal 2026.
Personal Systems President Ketan Patel expects AI PCs to represent 60% to 70% of shipments in fiscal 2027 and more than 70% in fiscal 2028.
Patel said businesses increasingly recognize the benefits of running AI locally. Those include lower cloud costs, stronger data privacy and faster performance.
HP gained 2.6 percentage points of sequential market share in premium PCs and 1.8 points in workstations. Peripherals, collaboration products and services now generate about one-third of Personal Systems’ gross profit.
The company is also working with more than 150 software vendors to expand its AI application ecosystem.
Print Revenue Slips
Print revenue fell 2% year over year. Weak commercial office demand in North America and China weighed on results, along with pressure in Middle East supplies.
One-time tariff refunds boosted segment results. However, underlying margins remained in line with expectations. HP maintained its long-term Print operating margin target of 16% to 19% for fiscal 2027.
HPQ Price Action: HP shares fell 10.52% to $27.32 in Thursday’s premarket trading, according to Benzinga Pro.
Photo via Shutterstock
Login to comment