HP shares rise by four percent following strong Q3 2020 revenue results

HP Inc’s latest financial results have revealed that the firm performed better than expected during Q3 2020, causing its shares to rise by four percent. 

Earlier in the year, HP had provided an outlook of $0.35 to $0.41 earnings per share, but its strong revenue performance caused this to rise to $0.52 per share. The news was well-received by investors, and HP’s shares have risen by four percent since the figures were published. 

Despite the positivity surrounding the company’s Q3 2020 performance, HP’s revenue was flat during the period at $14.6 billion. This figure represents a slight 2.1 percent decline on the $14.3 billion revenue generated during Q3 2019. 

In an earnings call with analysts and investors, Enrique Lores, President and CEO of HP, praised the company’s Q3 performance. Lores also identified remote working as an opportunity for the firm, with its strong product portfolio making it well placed to take advantage. “Our strong Q3 results and solid beat for the quarter, in the face of unprecedented uncertainty, reflects the agility of our teams and the strength of our portfolio,” said Lores.

“We’re leveraging our leadership across consumer and commercial markets to capitalize on opportunities – from the essential role of the PC in an era of remote work and school to the rise of subscription-based business models to enable greater flexibility,” he added. 

“Our diverse portfolio and disciplined execution are powering our performance and we’re well positioned to drive continued value creation.” 

The HP 3D Printing and Digital Manufacturing Center of Excellence. Photo via Vicens Gimenez/HP.
HP’s stronger than expected revenue performance saw its share price rise by four percent. Photo via Vicens Gimenez/HP.

HP’s Q3 2020 financial results 

HP’s revenue is reported under two segments: Personal Systems and Printing. Personal Systems comprises revenue earned from the company’s Notebooks, Desktops and Workstations divisions. Sales in Printing includes revenue from Supplies, Consumer Hardware and Commercial Hardware segments. Office Printing Solutions, Graphics Solutions and 3D Printing are also reported under the Printing division. 

Personal Systems generated the most revenue for HP during Q3 2020, with the company’s Notebooks division, being the stand-out performer within the segment. Over the third quarter, HP reported $10.3 billion in Personal Systems revenue, a 7 percent increase on the $9.6 billion generated in Q3 2019. The firm’s Notebook revenue also grew, from $5.6 billion in Q3 2019 to $7.3 billion in Q3 2020, a 30 percent rise.

Revenue Segment Q3 2020 Q3 2019 Variance (%)
Notebooks 7.3 bn 5.6 bn +30
Desktops 2.2 bn 3.1 bn -29
Workstations 0.4 bn 0.6 bn -30
Other 0.4 bn 0.3 bn +20
Personal Systems (Total) 10.3 bn 9.6 bn +9.7

HP’s Printing segment did not fare so well during Q3 2020. For the three months ending July 31, 2020, the company generated $3.9 billion in Printing revenue, a 20 percent drop compared to the $4.9 billion reported in Q3 2019. 

The firm’s Commercial Hardware division, which includes 3D printer sales, suffered the largest decline of any segment, falling 37 percent. Over Q3 2020, HP generated $0.7 million in 3D printing revenue compared to the $1.1 million reported in Q3 2019. 

HP during the COVID-19 pandemic 

During the earnings call, Lores said that HP’s Printing revenue streams have remained resilient, despite the closure of its factories in Southeast Asia due to COVID-19. “The Print business performed better than we expected,” said Lores. “Unit performance improved sequentially and we addressed the supply chain impacts of the factory closures we discussed on the Q2 call.”

“We remain uniquely well-positioned, given our leadership across both consumer and commercial print. Our strength has a clear advantage in the current environment,” he added. 

Throughout the third quarter, HP’s 3D printing business made a number of key contributions to the firm’s overall revenue growth. Working with its medical partners, HP 3D printed more than four million parts for the healthcare sector during Q3 2020. The company also launched a new polypropylene (PP) 3D printing material and formed a strategic alliance with part manufacturer Oechsler

Although the exact details of HP’s 3D printing revenue performance weren’t broken down on the call, the overall Printing segment was hampered by factory and office closures during lockdown. As many businesses remain closed, and office workers continue to work from home, HP’s Hardware and Materials revenue streams have been particularly badly affected. 

Despite the challenging macroeconomic climate, Lores maintained that the value of 3D printing had been amplified by the ongoing pandemic. “The benefits of 3D printing and the strength of our ecosystem have been clear throughout the pandemic,” said Lores. “Across our Industrial businesses, we continue to see attractive opportunities to drive medium to long-term value creation.” 

HP Jet Fusion 5200 Series 3D printer. Photo by Michael Petch.
HP’s 3D printing revenue declined by 37 percent during Q3 2020. Photo by Michael Petch.

HP’s outlook for Q4 2020

As HP moves into Q4 2020, Lores expressed confidence that the reopening of the economy would lead to a recovery in the company’s Printing segment. “We saw an improvement in commercial print usage through the course of the quarter as well as our factories back to more normalized levels,” said Lores. “We remain confident that Q4 operating profit dollars and margin rate will improve sequentially and that as volumes increase, our operating margins will return to our long-term target” 

Owing to the company’s strong revenue performance in Q3 2020, HP issued $251 million in cash dividends over the quarter. HP also repurchased $1 billion worth of shares in Q3 2020, and is targeting the same buyback amount for the next five quarters. As a result, the firm’s outlook for net earnings per share in Q4 2020 is predicted to be in the range of $0.50 to $0.54. 

Concluding the earnings call, Lores said that HP’s Q3 revenue results have positioned the company well for the challenges that lie ahead in Q4. “Our results this quarter, the commitment of our people and the strength of our culture, gives me confidence in where we are heading,” summarized Lores. “While we have lots of work to do, we see significant opportunity to drive long-term value creation.”

“Our structural advantages, disciplined cost management and unwavering focus on the customer, position us well to navigate current headwinds. Our leadership in both consumer and commercial, uniquely positioned HP to capitalize on opportunities across the business,” he added. 

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Featured image shows HP’s 3D Printing and Digital Manufacturing Center of Excellence. Image via Vicens Gimenez/HP.