Shares of Hewlett-Packard (HPQ) have surged some 17% so far in 2019, besting the 11% rise of the S&P 500 index. And for the company to maintain its outperformance, it must project confidence when it reports first quarter fiscal 2019 earnings results after the closing bell Wednesday.
This is because after two straight quarters of growth, PC shipments declined for both the fourth quarter and year in 2018, according to data released last Thursday from research firm Gartner. Owing to a shortage of CPUs (central processing units) which created supply chain issues, Global PC sales fell 4.3% to 68.6 million units in Q4, and 1.3% to 259.4 million in 2018, the firm noted.
During the quarter HP, which lead in global PC sales for much of 2018, fell out of the top spot in, coming in second to China’s Lenovo’s (LNVGY). Despite the slump in PC shipments, Lenovo’s market share during the quarter grew to 24.2% from 21.9% and to 22.5% from 20.8% for the year, overtaking HP, Gartner noted. How much of this weakness will impact HP’s top and bottom lines?
Those are some of the more pressing questions investors will hope the company will answer. Given the stock’s year-to-date performance, investors don’t appear too worried. But to keep the stock heading in the right direction, HP will need to show it can grow its profit margins, while issuing confident revenue guidance.
For the quarter that ended January, the Palo Alto, Calif.-based company is expected to earn 52 cents per share on revenue of $14.88 billion. This compares to the year-ago quarter when earnings came to 48 cents per share on revenue of $14.52 billion. For the full year, ending in October, earnings are projected to increase 9% year over year to $2.20 per share, while full-year revenue of $59.63 billion would mark a 2% year-over-year rise.
In the fourth quarter the company delivered revenue of $14.59 billion, which surpassed Street estimates by $320 million, while adjusted EPS of 52 cents came in a penny above the Street. As evident by the recent drop in the stock price it would seem investors haven’t forgotten the suffering they’ve been through when HP suffered multiple quarters of revenue declines dating back to 2010.
In the fourth quarter, the company’s revenue results came in ahead of consensus, coming in at $15.4 billion, beating the $15.1 billion that analysts were calling for. Profits of $1.5 billion, or 54 cents per share on an adjusted basis, matched expectations and garnered an applause by investors, sending the stock surging in the after-hour session. That’s because the figure was also 10% better on a year over year basis.
The company’s outlook for fiscal 2019, however, is what investors will focus on to determining the real value of HP shares. This is because the company’s revenue growth is expected to take a slight dip this fiscal year. There are also questions as to the extent the company’s improving PC and Printer businesses, which drove positive earnings in fiscal 2018, can continue to drive market share gains.