HP(HPQ) - 2025 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported a 5% increase in revenue in constant currency year over year, marking the fourth consecutive quarter of revenue growth [7][21] - Non-GAAP operating profit fell short of expectations due to additional tariff costs, impacting earnings per share by approximately $0.12 [8][21] - Operating margin was 7.3%, impacted by roughly 100 basis points due to unmitigated tariff costs [24][21] Business Line Data and Key Metrics Changes - Personal Systems revenue grew 8% in constant currency, driven by strong commercial performance, with commercial PC revenue increasing by 9% year over year [9][10] - Print revenue declined 3% in constant currency, with growth in Europe offsetting a slowdown in North America and weak demand in China [11][12] - Personal Systems operating margin was 4.5%, below guidance due to higher commodity and tariff costs [26] Market Data and Key Metrics Changes - Revenue growth was seen across all regions, with APJ growing 9%, Americas growing 5%, and EMEA growing 1% in constant currency [23] - The company expects the PC market to grow low single digits for the second half of the year, influenced by macroeconomic uncertainties [18][31] - The print market is expected to decline low single digits for the calendar year, with the second half declining closer to mid single digits [32] Company Strategy and Development Direction - The company is focusing on diversifying its manufacturing locations to mitigate geopolitical risks, with nearly all products sold in North America expected to be built outside of China by June [8][9] - The Future Ready Accelerated Plan aims to deliver at least $2 billion in gross annual run rate structural savings by the end of fiscal year 2025 [18][28] - The company is committed to leveraging AI to enhance productivity and employee satisfaction, with significant investments in AI PC portfolios and workforce solutions [13][20] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the dynamic geopolitical landscape and its impact on operating profit, emphasizing the need for cost management and strategic pricing actions [21][22] - The company remains confident in its ability to navigate market uncertainties and expects to fully mitigate tariff costs by Q4 [30][34] - Future growth is anticipated in both Personal Systems and Print segments, with expectations for sequential improvement in margins [31][32] Other Important Information - Cash flow from operations was approximately $38 million, with free cash flow slightly negative due to timing of payments related to inventory actions [29] - The company returned close to $400 million to shareholders through dividends and share repurchases [30] Q&A Session Summary Question: Expectations for the PC market in the second half of the year - Management noted strong demand in Q2 but adopted a more prudent outlook for the second half due to economic conditions and anticipated price increases [39][40] Question: Size and growth of growth businesses - Growth businesses are expected to grow faster than core businesses, with AIPCs projected to represent over 25% of the PC business by year-end [46][47] Question: Personal Systems margins for the full year - Margins are expected to be in the 5% to 7% range for the full year, likely in the lower half due to Q2 impacts [52][53] Question: AI PCs and their applications - The company is optimistic about AI PCs, with over 100 ISVs supporting applications that leverage their capabilities [59][60] Question: Mitigation actions for tariff impacts - The company has accelerated the shift of factories out of China and implemented price actions across its portfolio to mitigate tariff impacts [69][72]