While HP Inc (NYSE: HPQ) reported better-than-expected revenue on Wednesday, revelations that the global technology leader missed on earnings saw the share price fall around 15% overnight.
What also weighed on the minds of investors was the stock’s disappointing guidance outlook, which management said, “reflects the added cost driven by the current U.S. tariffs,” as well as the associated mitigations.
“While results in the quarter were impacted by a dynamic regulatory environment, we responded quickly to accelerate the expansion of our manufacturing footprint and further reduce our cost structure,” HP CEO Enrique Lores told the market yesterday.
HP has increased production in Vietnam, Thailand, India, Mexico and the U.S. and by the end of June, expects virtually all of its products sold in North America to be built outside of China.
“Through our actions, we expect to fully mitigate the increased trade-related costs by Q4,” Lores also noted.
2Q results
While revenue (up 3.3%) at $13.22 billion beat analysts expected $13.14 billion, earnings per share at 71 cents missed the 80 cents expected.
HP reported net income of $406 million, or 42 cents per share, down from $607 million, or 61 cents per share, a year ago.
Disappointing outlook
For its third quarter, HP expects to report adjusted earnings of 68 cents to 80 cents per share, missing the average analyst estimate of 90 cents.
The full-year adjusted earnings range of $3 to $3.30 per share is also a miss against analysts’ expected $3.49 per share.
Underscoring the weaker earnings forecast is the rising impact of economic uncertainty – courtesy of tariffs - on the demand for computers.
While a recovery in the long-ailing personal computer market has started to materialise in recent quarters, tariffs are derailing progress.
Shipments of PCs ticked up 4.9% in the March quarter.
However, IDC, an industry research firm suspects this may be due to customers making purchases ahead of U.S. President Donald Trump’s tariffs announced on 2 April.
“Clearly the economic environment is very different now from what it was in February and consumer and some business confidence has clearly changed,” Lores said.
Apart from a weaker economy, industrywide price increases are hurting demand, he noted.
“We thought it was important to be prudent.”
Lores expects to fully mitigate the increased trade-related costs by the fourth quarter.
The stock closed at $27.20 in New York and has declined 16% this year.
HP is in the throes of launching new notebooks in Australia.
