HP(HPQ) - 2026 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - HP reported revenue of $14.4 billion for Q1 2026, representing a 7% year-over-year increase, driven by strong performance in Personal Systems and the impact of the Windows 11 refresh cycle [11][24] - Non-GAAP EPS was $0.81, reflecting a 9% growth compared to the prior year and was at the top of the guidance range [11][26] - Gross margin was 19.6%, influenced by a higher mix from Personal Systems and increased commodity costs, partially offset by pricing and cost reduction actions [25] Business Line Data and Key Metrics Changes - Personal Systems revenue grew by 11% with a 12% increase in units, benefiting from the Windows 11 refresh and AI PC adoption [26] - Print revenue declined by 2%, with consumer revenue down 8% and commercial revenue down 3%, although higher average selling prices (ASPs) helped offset lower volumes [28] - AI PCs accounted for over 35% of total PC shipments, up from 30% in the previous quarter [12][58] Market Data and Key Metrics Changes - Revenue growth was observed across all regions, with APJ revenue up 13% in constant currency, EMEA up 5%, and Americas up 1% [24] - The company anticipates a double-digit decline in the PC unit total addressable market (TAM) for calendar year 2026, reflecting industry-wide pricing actions [32] Company Strategy and Development Direction - HP is focusing on integrating AI into its products and services, with initiatives aimed at enhancing customer experiences and operational efficiency [12][13] - The company is committed to a "future of work" strategy, which includes expanding market share and ensuring pricing reflects the value delivered [10][12] - HP is actively managing supply chain challenges and implementing cost mitigation strategies in response to rising memory costs [17][19] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating the current volatile environment, emphasizing the importance of disciplined execution of mitigation plans [21][36] - The company expects to maintain its annual non-GAAP diluted EPS guidance range of $2.90-$3.20, although it may be closer to the lower end due to ongoing challenges [35][36] - Management highlighted the importance of securing supply and shaping demand to offset rising input costs [24][41] Other Important Information - HP is evaluating the impact of recent U.S. Supreme Court rulings on tariffs but does not expect significant negative effects [20] - The company plans to reschedule its Investor Day due to the ongoing CEO transition [22] Q&A Session Summary Question: Impact of memory costs on Q1 results - Management indicated that memory costs increased significantly, with a forecast of further increases impacting margins for the remainder of the year [40][41] Question: PC unit TAM decline specifics - Management expects a double-digit decline in PC unit TAM, aligning with industry forecasts, but sees opportunities for revenue growth through pricing and share gains [44][47] Question: Free cash flow generation target - Management discussed the expectation of $2.8 billion-$3 billion in free cash flow, emphasizing the importance of PS growth and cash conversion cycles [82][83] Question: Print margins and growth levers - Management highlighted strategies for maintaining print margins at the high end of their range, focusing on profitable growth and cost structure reductions [87] Question: CEO search process - The board is looking for a CEO with a proven track record in delivering shareholder value and navigating complex environments [90]