23 Aug

HP CEO Exits, Leaving Its Future Uncertain

WRITTEN BY Sneha Nahata

HP (HPQ) has been trending down since the company announced the departure of its CEO. It fell around 6.34% in after-hours trading on August 22 and was also down over 8% in premarket trading today. HP stock was down 0.16% on August 22 and closed at $18.93. The stock has also breached its 52-week low of $18.06. It seems that HP investors were extremely disappointed with the news of HP CEO Dion Weisler leaving the company.

Weisler joined HP in 2012 and has served as its president and CEO for around four years. He’ll exit the position in November. He’s decided to go back to his home country, Australia, due to some health issues in his family. Weisler will, however, continue to serve as a company board member until the next annual stockholder meeting.

HP CEO Exits, Leaving Its Future Uncertain

HP CEO replaced by printing head

Weisler will be replaced by Enrique Lores, who is currently leading HP’s imaging, printing, and solutions business. Lores will take on the role on November 1. Weisler will remain in the company and work with Lores until January 2020 for a smooth transition.

Lores seems to be a perfect fit for the CEO role, according to the company’s board. Lores knows the company well and was part of its spin-off from its parent, Hewlett-Packard Company. During the separation, he helped transform HP’s cost structure, and he’s also helped build a profitable organization under Weisler’s leadership.

Hewlett-Packard Company was split into HP and Hewlett Packard Enterprise in 2015. Since then, HP has reportedly added around $7 billion in revenue and generated free cash flows of over $13 billion. HP has also met or exceeded its earnings guidance for 15 consecutive quarters since the split.

Lores to face challenges

The role of CEO isn’t going to be easy for Lores, who will face many challenges. Since 2015, Lores has served as the president of the printing business, which made over $20 billion in revenue in fiscal 2018. However, the profitable printing business hasn’t been performing well as of late. Weak supplies have hurt it, and the company is struggling to generate revenue. Third-party suppliers, especially in China, also reportedly dented HP’s toner and ink cartridge sales with their cheaper alternatives. Moreover, offices nowadays are simply using less paper.

During the third quarter of fiscal 2019, HP’s printing revenue fell 5% YoY (year-over-year) on a constant-currency basis. Weak printer supplies dented its revenue in the quarter and came in below expectations. The company also doesn’t expect its supplies revenue to grow next year, and it predicts softness in the Printing segment to remain in the near term.

HP is also facing a decline in the demand for PCs in the smartphone era. The company is now trying to sell innovative and premium computers to gain revenue. In the third quarter of fiscal 2019, the company showed strength in its PC business. Its Personal Systems revenue increased 6% YoY on a constant-currency basis in the quarter, mainly due to a 10% rise in its commercial revenue.

Road ahead

We expect Lores to revive the company, which is grappling with a stagnant PC market and a weakening printer business. He’s also likely to reduce the company’s costs to boost profitability.

During the third quarter, HP raised its earnings guidance for fiscal 2019, which ends in October. We believe the company’s earnings growth will mainly come from its share buybacks. The company now expects its EPS to be in the range of $2.18–$2.22. Analysts expect HP’s EPS to be $2.20 in fiscal 2019.

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