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HP Is Facing Two Kinds of Stress, Revenue and Xerox

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Hewlett Packard (HPQ) posted its quarterly earnings of 49 cents per share for the quarter ended on October 30, overall surpassing EPS estimates four times consecutively over the last four quarters. But its shares dropped 4 percent due to lower-than-expected fourth-quarter revenue.

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HP’s fourth-quarter earnings report

Unlike EPS, the company wasn’t able to beat consensus revenue estimates over the last four quarters. For the quarter ended on October 30, 2019, revenue amounted to $7.22 billion. Revenues for the comparable quarter last year were $7.95 billion. But revenue has been stabilizing during the last three quarters. The total for fiscal 2019 came in at $29.14 billion. That makes a slight 2% year-over-year drop when adjusted for currency and Tier 1.

Besides weakening macroeconomic factors, HP management deliberately took action to realign the company’s portfolio. HP continues to exit the lower-margin Tier 1 server segment. This approach allowed the company to increase its R&D spending 10% year-over-year. But analysts expected 7.40 billion in revenues, and revenue did fall 9% compared to last year’s comparable quarter. The company is also still struggling with longer sales cycles. So this is a somewhat mixed earnings report, but the company is pleased with its performance.

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Outlook for HP investors

On the one hand, HP doesn’t have an easy job ahead to prove that it can drive sustainable profitable growth as well as value for its shareholders all on its own. On the other hand, it has added about 32% to its shares since the beginning of the year, whereas the S&P 500’s (SPY) gained 25%, so it has outperformed the market.

Therefore, there’s a reason why HP feels it holds a “unique position in delivering outcomes for its customers.” The company is very pleased with the performance both in the quarter and the whole fiscal year 2019. The results show its business model is resilient to macroeconomic headwinds, as it’s able to generate substantial amounts of free cash flow and has laid a strong foundation for years to come.

Xerox pressure

The company has rejected Xerox Corporation’s (XRX) bid for the second time, showing it’s more than self-confident in its value and will not settle for anything less than what it feels it deserves. But Xerox just sent a letter to HP’s board of directors confirming its intention to engage directly with HP shareholders.

Xerox is aggressively pursuing the idea of the two companies forming an industry leader with enhanced offerings across a complete product portfolio. It would be a leader well-positioned to invest in innovation and able to generate greater revenue to shareholders. It was clear from the very beginning and the first letter that Xerox won’t give up that easily. And we’re about to see how far they are willing to go to pursue this “compelling opportunity.”

This article is contributed by IAMNewswire.com. It was written by an independently verified journalist and is not a press release. It should not be construed as investment advice.

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