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 [8][22] - Non-GAAP operating profit fell short of expectations due to additional tariff costs, impacting earnings per share by approximately $0.12 [9][22] - Gross margin decreased to 20.7% year over year, influenced by increased tariff and commodity costs [24] Business Line Data and Key Metrics Changes - Personal Systems revenue grew 8% in constant currency, driven by strong commercial performance, with commercial revenue increasing by 9% year over year [10][26] - Print revenue declined 3% in constant currency, with growth in Europe offsetting a slowdown in North America and weak demand in China [12][28] - The operating margin for Personal Systems was 4.5%, below the guidance range, primarily due to higher tariff costs [27] Market Data and Key Metrics Changes - Revenue growth was observed across all regions, with APJ growing 9%, Americas growing 5%, and EMEA growing 1% in constant currency [23] - The company expects the PC market to grow low single digits for the second half of the year, influenced by macroeconomic uncertainties [19][33] - The print market is anticipated to decline in low single digits for the calendar year, with expectations of a mid-single-digit decline in the second half [34] Company Strategy and Development Direction - The company is focusing on diversifying its manufacturing locations to mitigate geopolitical risks, with plans for nearly all products sold in North America to be built outside of China by June [9][10] - The Future Ready Accelerated Plan aims to deliver at least$ 2 billion in gross annual run rate structural savings by the end of fiscal year 2025 [19][30] - The company is committed to leveraging AI to enhance productivity and employee satisfaction, with a significant focus on AI PCs and related innovations [14][21] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the dynamic external environment, including shifting trade policies and tariffs, which impacted operating profit [7][22] - The company remains confident in its ability to navigate market uncertainties and expects to fully mitigate tariff costs by Q4 [18][33] - Future growth is expected to be driven by strong demand in commercial PCs and the adoption of AI technologies [19][66] Other Important Information - The company returned approximately $400 million to shareholders through dividends and share repurchases [31] - Free cash flow was slightly negative due to timing of payments related to inventory actions taken for tariff mitigation [30][68] Q&A Session Summary Question: Expectations for the PC market in the second half of the year - Management noted strong demand in Q2, especially in commercial, but adopted a more prudent outlook for the second half due to economic conditions and price increases [42][43] Question: Size and growth of growth businesses - Growth businesses are performing well and are expected to represent more than 25% of the PC business by year-end, with solid growth in AIPCs and Workforce Solutions [49][50] 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 [55][56] Question: AI PCs and their impact on growth - The company is optimistic about AI PCs, which are expected to represent a significant portion of PC shipments in the coming years, driving higher average selling prices [66] Question: Mitigation actions for tariff impacts - The company has accelerated the shift of manufacturing out of China and implemented price increases across its portfolio to offset tariff costs [75][78]