HP Inc. Q3 FY2025 earnings call

• Made solid progress against goals and key strategic initiatives in Q3, delivering fifth consecutive quarter of growth. • Personal systems drove growth fueled by Windows 11 refresh, AIPC adoption, and services growth, achieving double-digit sequential growth and returning personal systems operating margin to target range. • Print revenue declined but key growth areas such as consumer subscriptions and industrial graphics performed well. • Advanced AI-powered solutions were highlighted, including AIPC lineup recognition, eBook Ultra being named top AIPC, and workforce experience platform deployment in 40 countries. • Committed to reaching $2 billion in annualized savings by the end of fiscal year 2025, focusing on supply chain resiliency, cost reduction, and pricing actions. • Excited about AI's potential to transform operations and compete, with plans to share long-term plans at the Investor Day in early 2026.

In Q3, HP achieved a fifth consecutive quarter of growth. Top-line revenue grew 3% year-over-year, driven by strong performance in personal systems. Personal systems revenue increased 6% year-over-year, with 5% unit growth and higher average selling prices (ASPs), shifting towards premium segments. Print revenue declined 3% in constant currency as expected, but key growth areas performed well. In constant currency, Americas and EMEA each saw 1% growth, and APJ grew 11%, with strong personal systems performance in China.

• For Q4, personal systems revenue is expected to be in line with prior year seasonality, driven by holiday uptick, Windows 11 refresh, and AIPC adoption, with personal systems margin in the 5% - 7% target range. • Print Q4 revenue is expected to be in line with prior year seasonality, with operating margin near the top of the 16% - 19% range. • Fiscal year 2025 free cash flow is expected to be in the range of $2.6 billion to $3 billion. • Q4 non-GAAP diluted EPS is expected to be in the range of $0.87 to $0.97, and GAAP diluted net earnings per share is expected to be in the range of $0.75 to $0.85. • Anticipates PC market to grow mid-single digits in the second half of 2025 and continue momentum in 2026; print market expected to decline low single digits in 2025 and 2026.

• Continued uncertainty in the global trade environment, which may impact operations and financial results. • External pressures may require quick responses, and the full benefit of mitigation actions for trade-related costs may take time to materialize.

Q: Quantify the tariff-related cost impact and offsetting actions.

A: Karen Parkhill stated that HP mitigated the majority of tariff costs in Q3 while delivering EPS slightly above the midpoint of the guide, expecting to fully offset trade-related costs. Enrique Lores added that HP completed the change of manufacturing for most products going to the US, implemented additional cost actions, and took selective price increases, making good progress in mitigating tariffs.

Q: Outlook for the print business regarding return-to-office initiatives.

A: Enrique Lores mentioned that enterprises and commercial businesses are prioritizing other areas over print in the short term, but the number of pages printed remains unchanged, indicating the print business will recover in the long term.

Q: Details about the AIPC category.

A: Enrique Lores said the AIPC mix is over 25%, with higher pricing than non-AIPC units, and the ecosystem is developing with software companies utilizing NPUs.

Q: Confidence in the PC market guide.

A: Enrique Lores stated that Q4 has normal seasonality with consumer holiday uptick, and Windows 11 refresh and AIPC adoption are driving momentum into 2026.

Q: Print margin dynamics.

A: Enrique Lores said print margin changes are similar to previous years, driven by supplies mix, and HP will continue to drive profitable units, subscriptions, share in office categories, and cost management.

Q: Poly business and enterprise spending.

A: Enrique Lores mentioned that hybrid systems had short-term impact, but HP continues to invest in headset and video solutions, with gaming peripherals like HyperX showing strong growth.

Q: Product refresh across the portfolio.

A: Enrique Lores said there will be refreshes across the PC portfolio, including consumer, commercial, workstation, and printing areas in the next year.