To no one’s surprise, HP Inc. (NYSE: HPQ) reported a decline in total revenue in its recently released fiscal third quarter earnings report. The upside is that the $11.9 billion in sales — amounting to a 4% drop compared to the year-ago period — was better than expected by a wide margin. Consensus estimates called for $11.47 billion in sales.
HP handily beat the $0.44 earnings per share consensus estimate as well: After factoring in discontinued operations, HP reported an impressive 26% jump in EPS to $0.49 a share versus last year’s $0.39. So far, so good right? Unfortunately for HP shareholders, then the other shoe dropped — and in this case, that shoe was the EPS guidance for Q4.
On a non-GAAP basis (excluding one-time items) HP expects to report EPS of $0.34 to $0.37 this quarter, well below the average of $0.41 a share analysts had forecast. But before investors start running for the hills, there are a few bright spots to consider. First, CEO Dion Weisler’s strict cost management initiatives are working: HP’s total costs and expenses dropped nearly $600 million year over year.
Second, HP’s flat PC sales were well above the industry’s average results, thanks to its strategy of focusing on high-powered, gaming-caliber desktops. And with its new OMEN PC ready for prime time, it’s likely that Q4 will be another relatively strong quarter in that area. Finally, a key reason the Q4 outlook is less than stellar is that HP plans to ratchet up its high-end printer game, which in turn will boost its ancillary product and servicing revenue. That will take some time and upfront outlays, but should reward long-term, patient investors.
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Tim Brugger has no position in any stocks mentioned.