HP (HPQ) Closes Out FY21 On A Strong Note; Aggressive Share Buybacks Makes HPQ Worth A Look

HP Inc. (HPQ) is trading nicely higher after closing out FY21 on a strong note last night. HPQ reported a sizable beat for both EPS and revenue for Q4 (Oct). The computing giant also guided above consensus for Q1 (Jan).

HPQ’s commercial PC segment is seeing a nice pickup as offices reopen. HPQ is shipping as much product as it can, but it is facing supply chain issues. HPQ’s earnings have been solid because it has been reducing its fixed cost structure. Also, it’s expanding its TAM with new offerings in both Personal Systems (peripherals, new compute models) and Printing (expanding services and subscription offerings).

By segment, Personal Systems (PCs, notebooks, gaming accessories) revenue grew a robust 13% yr/yr to $11.80 bln, fueled by very strong demand. As more offices reopened, HPQ saw a shift toward Windows-based Commercial products, where the company reported the strongest demand and highest profitability. The company continues to see a significantly elevated order backlog, but it expects component shortages, particularly in IC, to persist.

On the Print side, revenue grew 1% yr/yr to $4.88 bln, driven by growth in services and subscriptions which offset an expected volume decline driven by limited supply. Like others in the industry, HPQ continues to operate in a supply-constrained environment caused by COVID-related disruptions and broader logistics issues. However, demand for print hardware and supplies remains strong. HPQ had more hardware orders in the quarter than it could fulfill.

By customer segment, Consumer revenue was down 6%, with units down 28%. However, Commercial revenue grew 19%, even with unit sales down 12%. HPQ said that Consumer demand remains solid but that revenue across both home and office was constrained by the current supply environment. HPQ expects to see a continued gradual and uneven recovery in Commercial extending into FY 2022.

The big question is how long these problems will last. For PS, HPQ expects component shortages and ports/transit disruptions to continue. In Printing, HPQ expects similar, but more acute challenges, particularly regarding factory disruptions and component shortages. HPQ expects these challenges across PS and Print to persist at least through the first half of 2022. This is right on par with what has been forecast by other IT hardware OEMs.