Five key takeaways from HP's Q2 results

The computer giant saw growth despite economic headwinds bearing down on the tech industry

HP has revealed its "solid" second quarter results, with the computer giant posting a net revenue increase of 3.9 per cent to $16.5bn.

The company saw growth in its fiscal 2022 second quarter despite economic headwinds bearing down on the tech industry.

"Our consistent performance in the face of a volatile macro environment gives us confidence in our plans to build a stronger HP," said Enrique Lores, HP president and CEO.

"We delivered a solid quarter of revenue and non-GAAP EPS growth, while returning significant capital to shareholders."

In this article we look at five key takeaways from the financial results posted by HP.

Strong momentum in key growth businesses

HP saw its key growth businesses, which includes gaming, peripherals, Instant Ink, Workforce Solutions, Industrial Graphics and 3D, collectively grow double-digits, seeing a total revenue of $5.6bn in the first half of the year.

The company also generated $0.4bn of free cash flow and returned $1.3bn to shareholders through share repurchases and dividends, while non-GAAP EPS grew 16 per cent year-over-year to $1.08.

In an earnings call, transcribed by Seeking Alpha, Lores said: "We feel very good about these results. We mitigated the impact of higher commodity costs by implementing effective pricing strategies in both Print and Personal Systems while maintaining strong demand.

"As we navigate the macro environment, we are making consistent progress on our strategic priorities and bringing strong innovation to market. This is reflected in our business unit performance."

Lores also highlighted that the second quarter results show "strong momentum" in HP's plan to advance leadership in its core markets and that it's overall revenue shows there is "strong demand" for HP technology and services.

HP winding down operations in Russia

During the earnings call, Lores said that HP would cease all operations in Russia.

HP suspended shipments to Russia and Belarus across its portfolio in February and now Lores confirmed it has started to fully wind down its operations in Russia.

He said that from a supply perspective, the move as well as industry-wide component shortages and Covid-related disruptions in China will have an impact on HP's results.

Lores said: "From a supply perspective, we see two quarters of constraints. First is the industry-wide component shortages that we expect will continue through fiscal 2022; second, are the Covid-related disruptions in China, which we expect will primarily impact fiscal Q3.

"We will also see an impact from the Russia-Ukraine war. Last February, we suspended shipments to Russia and Belarus across our portfolio. Considering the Covid environment and long-term outlook for Russia, we have decided to stop our Russia activity and have begun the process of fully winding down our operations."

He added that HP is donating a "significant number" of PCs to help Ukrainian refugees and their families.

Lores said: "We're thinking about the people of Ukraine. More than three months into the war with Russia, the devastation and suffering across Ukraine is difficult to comprehend. So too is a situation facing the six million Ukrainian refugees, we continue to mobilise resources to support them. The HP Foundation has provided additional funding to support humanitarian relief across Central Europe.

"Times like this are a painful reminder of how much work is still needed to create a more just future. And I believe it's incumbent upon companies to lead with purpose. These values have long been core to the HP brand, and they will continue to guide us."

Print revenue declines

In Q2, total print revenue was $5bn, down seven per cent and six per cent in constant currency.

HP says this was driven by lower print hardware units and lower supplies revenue and was partially offset by higher hardware ASPs and growth in industrial graphics and services.

Total hardware units declined 23 per cent, largely due to continued component and logistics constraints, which HP now expects to extend at least through 2022.

By customer segment, commercial revenue declined four per cent on a decrease of 17 per cent in units and consumer revenue was down 12 per cent with units down 24 per cent.

However, HP chief financial officer Marie Myres said its print results "reflected our focus on execution and the strength of our portfolio as we navigate the current environment".

She added that home print demand "remains solid", although said revenue across both home and office were constrained by available supply.

"In Q2, the commercial recovery, particularly in the office segment, continued to be impacted by the slower-than-expected return to the office," Myres said.

"We continue to expect a gradual and uneven recovery in Commercial over time, with the overall office market returning to approximately 80 per cent of its pre-pandemic TAM."

Personal systems revenue up despite supply chain challenges

In Q2, Personal Systems revenue was $11.5 billion, up nine per cent and up 11 per cent in constant currency.

It comes despite total units being down 17 per cent, which was driven by ongoing supply chain challenges and the overall macro environment.

"Despite this, we grew revenue, reflecting the strength of Windows demand, our mix shift towards higher-value commercial categories like mainstream premium and mobile workstation and favourable pricing," Myres said.

Commercial revenue was up 18 per cent year-on-year and consumer revenue was down six per cent in the same period.

By product category, revenue was up three per cent for notebooks, 28 per cent for desktops and 21 per cent for workstations.

Personal Systems also delivered almost $800m of operating profit with operating margins of 6.9 per cent.

Myres added: "Our Personal Systems business has grown operating profit dollars in 17 of the last 18 quarters. This consistent performance is indicative of our strong portfolio, the strong secular tailwinds we continue to see and our ability to deliver results in very different environments."

Lores added that HP's supply chain actions are having a "positive impact".

He said: "We reduced our backlog quarter-over-quarter. While the backlog remains elevated, particularly in commercial, we believe the actions we are taking will drive continued improvement.

"As we prioritise operational execution, we are equally focused on strengthening our portfolio."

What's happening with the Poly acquisition?

During the quarter, HP entered into an agreement to acquire Poly in an all-cash transaction worth $3.3bn.

The PC and print vendor will pay $40 per share at $1.7bn and also take on Poly's net debt.

Lores said that once the deal is complete, HP expects the transaction to strengthen its position in hybrid work solutions and accelerate growth in peripheral and workforce solutions.

"Since the announcement was made, we have received very positive feedback from reseller partners and commercial customers about the opportunity ahead," he added.

"Our integration planning efforts are well underway. We are working closely with the Poly team to prepare for a smooth transition upon deal close. We look forward to welcoming the Poly team into HP later this year."