26 February 2021

HP’s Q1 Earnings Crush Expectations on PC Demand

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News shaping
the markets today

     

What’s happening: HP reported healthy results on Thursday for the fiscal first quarter, which surpassed market expectations.

What happened: Strong demand for notebook computers amid the ongoing remote-work trends helped HP report upbeat results for the fiscal first quarter.

The Palo Alto, California-based company also issued strong projections for the second quarter and fiscal 2021. However, HP’s release of quarterly earnings ahead of schedule due to a “small administrative error” limited gains for the stock.

How were the results: HP reported growth in both sales and profits for the quarter, which easily exceeded market views.

  • Revenues grew 7% year-over-year to $15.6 billion, beating the consensus estimate of $14.96 billion.
  • Adjusted profits came in at 92 cents per share, above the company’s own projected range of between 64 cents and 70 cents per share and surpassing the Street expectations of 66 cents per share.

Why it matters: Although HP has been witnessing a sharp rise in laptop sales required for learn- and work-from-home trends, the pandemic-led office closures had adversely impacted its printing unit. Companies gradually reopening their facilities helped the printing unit return to growth in the first quarter. Printing revenues grew 7% to $5 billion for the quarter, while revenues from Personal Systems also rose 7% to $10.6 billion.

Management issued a strong forecast for the fiscal second quarter, projecting adjusted profits between 84 cents and 90 cents per share, versus market view of 61 cents per share. For the full fiscal year, the company guided to earnings between $3.15 and $3.25 per share, also ahead of the consensus estimate of $2.65 per share.

CEO Enrique Lores said PC demand would likely remain at elevated levels even after the covid-19 pandemic. “We’ve made technology more relevant to users, and the changes are here to stay,” he commented.

Management was concerned about the continued global chip shortage, which led to the demand for PCs outstripping supplies. Lores added, however, that the company had adequate supply to support its upbeat forecast.

In a bid to boost growth in peripherals, HP recently announced a deal to buy Kingston Technology’s gaming division, HyperX, in a $425 billion deal.

How the shares responded: Shares of HP remained flat in after-hours trading on Thursday, even though the stock was up merely 0.75% during the regular session. The company’s shares have added around 15% year to date.

What to watch: Investors will keep an eye on sales growth at HP’s printing unit, with companies gradually reopening their offices, following a decline in covid-19 numbers and the rollout of vaccines. Markets will also monitor chip manufacturers and the ramp-up in their supplies to support HP’s bullish outlook.

The Markets Today

     

US stocks will be in focus today ahead of various economic reports due today.

Context: Wall Street recorded sharp losses on Thursday, as a strong rise in bond yields pushed investors to sell risky assets, mainly technology stocks.

Details: Investors holding tech stocks remained concerned about the rising yields, with the 10-year Treasury yield climbing as high as 1.6% on Thursday. However, the yield pared some gains and settled at around 1.52%, still a record high since February 2020.

“There was a flash spike in the 10-year yield and that upset the apple cart, as higher yields are spooking the stock market. Could there be more inflation coming than what most think? Although the Fed isn’t worried about that, the market might be,” said Ryan Detrick, chief market strategist at LPL Financial.

Markets shrugged off upbeat economic reports released on Thursday. Initial jobless claims declined to 730,000 in the latest week, versus the consensus estimates of 845,000. Durable goods orders grew 3.4% in January, significantly better than market expectations of 1% growth.

Shares of GameStop, which remained highly volatile last month due to short-squeeze interest, are on the rise again. The stock adding around 19% on Thursday, after jumping more than 100% on Wednesday.

The Dow Jones index tumbled 559.85 points to close at 31,402.01 on Thursday, after hitting a record high in the previous trading session. The S&P 500 shed 2.5% to settle at 3,829.34, recording its worst session since January 27.

The tech-heavy Nasdaq 100 tumbled 3.56% to 12,828.31, with shares of Apple, Alphabet and Facebook losing more than 3%. Tesla’s stock plummeted 8% on Thursday, as the EV maker announced plans to halt car assembly production in California. Having declined 5.4% this week, the Nasdaq is on track to recording its second successive weekly loss.

What to watch: Investors await a basket of economic data from the US, including personal income, personal spending, wholesale inventories, goods trade balance, Chicago PMI, and consumer sentiment. US personal income is expected to surge 9.5% in January, while spending is projected to rise 2.5%. The MNI Chicago Business Barometer is expected to decline to 61.1 in February, while a decline to 76.5 is expected in the University of Michigan's consumer sentiment index.

Rising covid-19 cases remain a top concern for markets, with total infections exceeding 28.4 million in the US.

Other Markets: European trading indices closed lower on Thursday, with the FTSE 100, the German DAX 30, French 40 and Stoxx 600 down by 0.11%, 0.69%, 0.24% and 0.36%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

Germany’s import prices, Turkey's balance of trade, Indonesia’s value of loans, UK’s Nationwide housing prices and car production, France’s GDP growth rate, inflation rate, household consumption expenditure, producer prices, initial jobless claims and unemployed persons, Spain’s consumer price index and current account, India’s infrastructure output, value of deposits, value of loans, foreign exchange reserves, central government budget value and GDP growth rate, Brazil’s unemployment rate, budget value and net payrolls, Mexico's balance of trade, South Africa's balance of trade, Canada’s industrial product price index, wholesale prices and government budget value as well as the US Baker Hughes crude oil rigs.

 

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