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Trends & Analysis
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HP shares shorted despite upbeat earnings

 

Wednesday, August 30, 2023

Today’s headlines

What’s happening: Shares of HP fell in after-hours trading on Tuesday, following the release of quarterly results.

What happened: The PC maker reported stronger-than-expected results for its fiscal third quarter on Tuesday.

However, HP issued a weak earnings forecast for the full year, amid a soft demand environment.

How were the results: The Palo Alto, California-based company reported a double-digit decline in earnings for the quarter.

  • Sales fell around 9.9% to $13.20 billion but exceeded the consensus estimates of $12.39 billion.
  • Earnings contracted 17.3% to 86 cents per share but topped Wall Street expectations of 80 cents per share.

Why it matters: Concerns over higher inflation and global economic growth had weighed on the demand for consumer electronics last year, resulting in elevated inventories for HP and its peers.

HP continues to grapple with lower decline for personal computers and weakness in its major markets, including China. A Canalys reported said that shipments of personal computers, including desktops, notebooks and workstations, to China had tumbled 19% over the last few months.

HP’s consumer PC sales fell 12%, while sales to businesses declined by 11%. Printing revenues slipped 7% to $4.3 billion.

HP’s total costs and expenses declined by 8.6% year-over-year. The company reported net operating cash of $1.0 billion and free cash flows of $0.9 billion.

“While we expect another quarter of sequential growth in Q4, the external environment has not improved as quickly as anticipated and we are moderating our expectations as a result,” CEO Enrique Lores said during the earnings call.

Management guided to earnings between 85 cents and 97 cents per share for the fourth quarter, versus estimates of 95 cents per share. They lowered their 2023 earnings guidance from between $3.30 to $3.50 per share to a range of $3.23 and $3.35 per share.

How shares responded: HP’s shares fell 10.7% to $28.00 in the extended trading session, after the company released results for its third quarter. The stock has added around 9% over the past six months.

What to watch: Investors will continue monitoring the overall economic environment, especially in the US and China. Markets will also watch HP’s inventory levels.

The markets today

The British pound will be in focus ahead of a basket of economic reports

Context: The GBP/USD forex pair moved higher on Tuesday, as traders awaited the Bank of England’s rate decision.

Details: The British central bank raised interest rates on August 3, marking the 14th rate hike since late 2021.

UK’s headline inflation cooled to an annualised rate of 6.8% in July, from 7.9% in June. However, the country’s core consumer price index (CPI) remained unchanged at 6.9%. The inflation report sparked speculations of the Bank of England raising its benchmark rate by another 25 basis points at its meeting on September 21.

BoE Chief Economist Huw Pill is scheduled to speak at the South African Reserve Bank Biennial conference on Thursday, which is expected to give some insights into the central bank’s upcoming move.

The GBP/USD forex pair settled higher at 1.2643 on Tuesday. Even after this gain, the British pound is on course to ending August in the red against the US dollar.

London’s FTSE 100 jumped 1.72% to close at 7,464.99 on Tuesday, after the London Stock Exchange reopened from a long weekend. Shares of companies with exposure to China closed higher, after the country reduced the stamp duty on stock trading to boost foreign investments.

What to watch: Traders await the release of economic data on consumer credit, mortgage approvals, mortgage lending, net lending to individuals and money supply M4 from the UK today. Markets will also watch major economic reports from the US.

Other Markets: US trading indices closed higher on Tuesday, with the Dow Jones index, S&P 500 and Nasdaq 100 up by 0.85%, 1.45% and 2.15%, respectively.

The news shaping the markets

A drone attack on an airport in Pskov in western Russia reportedly damaged two military transport planes. The news sent the safe-haven US dollar index slightly higher this morning.


Australia’s private house approvals declined by 0.1% to 8,084 units in July, exerting pressure on the AUD/USD forex pair.


The Philippines said producer prices accelerated by 0.1% year-over-year in July, following a 0.8% rise in the earlier month, which sent the PHP/USD pair lower in forex trading this morning.


New Zealand’s building permits declined by 5.2% to 3,200 units in July, after 3.4% growth in the previous month, which exerted pressure on the NZD/USD forex pair.


The American Petroleum Institute said crude stockpiles in the country contracted by 11.486 million barrels in the week ended August 25, versus a decline of 2.418 million barrels in the prior week. The news sent WTI crude oil prices higher this morning.

What else to watch today

Germany’s import prices and inflation rate, South Africa’s money supply M3 and private sector credit, Spain’s inflation rate and industry confidence indicator, Italy’s consumer confidence, manufacturing confidence index and industry sales, Eurozone’s economic sentiment indicator, industry confidence indicator, services confidence indicator, selling price expectations, consumer confidence indicator and consumer inflation expectations index, Brazil’s IGP-M inflation, net payrolls and producer prices, US MBA mortgage applications, ADP employment change, goods trade balance, wholesale inventories, GDP growth rate, price index for personal consumption expenditures, pending home sales, gasoline stocks change, crude oil inventories and distillate stocks, as well as Russia’s unemployment rate, retail sales, real wages, business confidence and corporate profits.


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