HP(HPQ) - 2025 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - HP Inc. reported a revenue growth of 2% year-over-year for Q1 2025, marking the third consecutive quarter of revenue growth [11][38] - Non-GAAP earnings per share (EPS) was $0.74, slightly above the midpoint of guidance, with operating profit margins for both Print and Personal Systems in line with expectations [12][42] - Gross margin decreased to 21% year-over-year due to increased commodity costs, with expectations for stronger margins in the second half of the year [40][41] Business Line Data and Key Metrics Changes - Personal Systems revenue increased by 5% year-over-year, driven by growth in the commercial segment, which represented over 70% of the PS revenue mix [24][43] - Print revenue declined by 1% in constant currency year-over-year, with strong unit growth in home and consumer subscriptions, achieving a milestone of one million instant paper subscribers [29][46] - Workforce solutions continued to show momentum with year-over-year revenue growth, including new managed print wins [30] Market Data and Key Metrics Changes - Revenue growth was observed across all regions, with APJ growing by 5%, Americas by 3%, and EMEA by 2% in constant currency [40] - The AI PC market experienced a sequential growth rate of 25% in the last calendar quarter, contributing to HP's commercial growth [26] Company Strategy and Development Direction - HP is focusing on leading the future of work by investing in AI and software capabilities, including the acquisition of strategic assets from Humane to enhance its technology ecosystem [14][15] - The company is realigning its key growth areas to prioritize hybrid systems, advanced compute solutions, and AI PCs, while managing gaming as part of its core portfolio [16] - HP aims to deliver$ 1.9 billion in gross annual run rate structural savings by the end of fiscal year 2025 to mitigate macro and geopolitical uncertainties [35][50] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the full-year outlook, anticipating stronger EPS in the second half of the year driven by seasonal strength in personal systems and the Windows 11 refresh [56][62] - The company is proactively managing geopolitical developments and has built a globally diverse supply chain to ensure manufacturing resiliency [32][34] - Management noted that the current tariff environment has been accounted for in their guidance, with plans to leverage their global supply chain to mitigate impacts [66][68] Other Important Information - HP's cash flow from operations was approximately $375 million, with free cash flow at$ 70 million, reflecting normal seasonality [51] - The company returned close to $400 million to shareholders through share repurchases and dividends [53] Q&A Session Summary Question: Impact of China tariff on guidance - Management included known impacts of current tariffs in their guidance, primarily affecting the personal systems business, with less than 10% of revenue expected to come from China by the end of FY 2025 [66][67] Question: Drivers of personal systems growth - Key drivers include aging install base, Windows 11 refresh, and penetration of AI PCs, with a focus on profitable premium categories [74][75] Question: Windows end of life and device specifications - Businesses are becoming more competent in refreshing devices, with an acceleration in the Windows 11 refresh observed [78] Question: Customer adoption of AI PCs - Current expectations for AI PC penetration by year-end are around 25%, with projections for 40% to 50% in two years [81] Question: Competitive environment for print in China - The competitive environment remains stable, with HP growing share in the print space, particularly in consumer hardware [121] Question: Inventory growth implications - Increased inventory was a strategic response to tariffs, impacting cash conversion cycles but not the full-year outlook [126][127]