HP Inc. (HPQ) Q2 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call highlights several negative factors: declining PC and print markets, rising memory and resin costs, and below-target operating margins. Although there are strategic plans to offset these challenges, such as pricing actions and new supplier agreements, the guidance remains weak with EPS expectations at the lower end. The Q&A section reveals concerns about rising costs and unclear future guidance, further dampening sentiment. Despite some positive elements like AI demand and Windows 11 tailwinds, the overall outlook is negative, likely leading to a stock price decrease of 2% to 8%.
Key Financial Performance
Revenue Revenue grew 9% year-over-year, marking the eighth consecutive quarter of top-line growth. This growth was led by strong Personal Systems performance, while print results were in line with expectations. The reasons for the growth include disciplined execution, growth in high-value categories, and mitigation strategies to manage commodity cost pressures.
Personal Systems Revenue Revenue grew 13% year-over-year with strong growth in both Commercial and Consumer segments. This includes momentum in AI PCs, which increased from more than 35% to 44% of shipment mix, and strength in Advanced Compute Solutions and Workforce Solutions. The growth was driven by prioritization of higher-value unit placements, services expansion, and disciplined pricing.
Print Revenue Revenue was flat year-over-year in a competitive market. The company focused on pricing discipline and placement of profitable units, gaining share in Big Tank printers. Industrial Graphics delivered its 11th straight quarter of revenue growth with momentum in hardware, supplies, and services.
Gross Margin Gross margin was 20.9%, up year-over-year. This increase was driven by favorable pricing and contributions from key growth areas, partly offset by higher commodity costs and increased mix from Personal Systems.
Operating Margin Operating margin was 7.5%, up 20 basis points year-over-year. This improvement was due to disciplined cost management and favorable pricing.
Net Earnings Per Share (EPS) Net earnings per share was $0.86, up over 20% year-over-year. This increase was attributed to disciplined execution and mitigation actions to offset higher input costs.
Free Cash Flow Free cash flow was roughly $800 million in the quarter, above expectations, driven by the strength of Personal Systems performance.
Consumer Revenue in Print Consumer revenue declined 10% year-over-year due to lower traditional printer volume in a competitive pricing environment. However, there was double-digit unit growth in tank printers, gaining share both year-over-year and sequentially.
Commercial Revenue in Print Commercial revenue was flat year-over-year, with higher ASPs helping to offset lower volumes. There was continued improvement in the office market and share gains sequentially across all A4 office categories.
Supplies Revenue Supplies revenue was flat year-over-year in constant currency, with pricing and share gains offsetting headwinds from installed base and usage.
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Operating Highlights
AI PCs: Introduced next-generation AI PCs with expanded local AI capabilities and partnerships with over 150 software companies. Examples include Goodnotes for local audio transcription and summarization, and AI Producer for professional production studios.
Z Workstations and AI Stations: Launched new devices to support demanding AI and compute workloads, enabling customers to develop, run inference, and scale AI workloads with better control over costs, latency, and security.
LaserJet Series: Introduced AI-enabled document workflows, quantum-resistant security, and faster document handling.
HP Multi Jet Fusion 1200: Launched a compact industrial 3D printing system to facilitate prototyping and production closer to work sites.
HP IQ: Introduced an intelligence layer for seamless integration across products, featuring HP NearSense for intuitive device connectivity.
Personal Systems Revenue Growth: Achieved 13% year-over-year growth, driven by AI PCs, Advanced Compute Solutions, and Workforce Solutions. Consumer revenue grew 10%, and Commercial revenue grew 14%.
Print Revenue: Flat year-over-year, with gains in Big Tank printers and industrial print. Double-digit growth in Consumer Subscriptions and 3D printing.
Cost Mitigation Strategies: Implemented actions like repricing, sourcing optimization, and productivity improvements to offset rising input costs.
Workforce Experience Platform (WXP): Enhanced with AI-driven tools for proactive management of devices, managing over 5.2 million devices globally.
Operational Efficiencies: Achieved $1 billion in gross annualized run rate savings through restructuring and cost-saving initiatives.
Future of Work Strategy: Focused on AI at the edge, hybrid AI models, and becoming a trusted intelligent edge provider.
CEO Search: Board actively evaluating candidates with a focus on long-term value creation, adaptability, and global business experience.
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Risk or Challenges
CEO Search: The ongoing search for a permanent CEO creates uncertainty in leadership, which could impact strategic decision-making and long-term planning.
Memory and Storage Costs: Rising memory and storage costs are expected to continue in the second half of 2026, creating financial pressures and potentially impacting operating margins.
Inflationary Pressures: Broader inflationary pressures, including oil prices and their downstream effects, are anticipated to create additional cost challenges.
Supply Chain Constraints: The constrained memory and storage environment could disrupt supply chain continuity and impact the ability to meet customer demand.
Competitive Market in Printing: The printing segment faces a competitive pricing environment, particularly in consumer printers, which could affect revenue and market share.
Declining PC Market: The PC unit TAM is projected to decline at a rate in the high teens for the second half of the calendar year, posing challenges for revenue growth in Personal Systems.
Input Cost Increases: Rising input costs, particularly in Personal Systems, are expected to pressure operating margins for the remainder of the year.
Hardware Volume Declines: Declines in hardware volumes, particularly in the printing segment, could negatively impact revenue despite favorable pricing strategies.
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Guidance & Outlook
Revenue Growth: HP expects to continue driving revenue growth in the second half of the year, despite rising input costs. Personal Systems revenue is projected to grow for the fiscal year, driven by pricing actions, share gains in premium categories, and increased attach of higher-margin offerings. Print revenue is expected to align with normal seasonality in Q3.
Operating Margins: Operating margins in Personal Systems are expected to be below the long-term range for the remainder of the year due to rising input costs. Print operating margins are projected to be near the lower end of the long-term range in Q3 but solidly within the range for the full year.
PC Market Outlook: HP aligns with industry experts projecting the PC unit TAM to decline at a rate in the high teens for the second half of the calendar year. Despite this, HP expects revenue growth in Personal Systems for the fiscal year.
Print Market Outlook: The hardware market is anticipated to decline in the low single digits in the second half of the calendar year. HP plans to gain share in tank printers and office categories through portfolio extensions and targeted promotions.
Supplies Revenue: Supplies revenue is projected to decline low single digits for the year in constant currency, with pricing and share gains expected to offset some headwinds.
Earnings Per Share (EPS): HP has raised its fiscal year EPS guidance to a range of $2.90 to $3.10, reflecting improved earnings performance. Q3 EPS is expected to be in the range of $0.61 to $0.71.
Free Cash Flow: Annual free cash flow is expected to be solidly in the range of $2.8 billion to $3 billion.
Input Costs: Rising input costs, particularly in memory and storage, are expected to continue increasing through the second half of 2026, impacting operating margins. Broader inflationary pressures, including oil prices, are also anticipated.
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Shareholder Return Plan
Dividends Paid: Returned nearly $400 million to shareholders through dividends and share repurchase in the quarter.
Commitment to Shareholder Returns: Committed to returning approximately 100% of free cash flow to shareholders over time, as long as gross leverage remains under 2x and there aren't better return opportunities.
Share Repurchase: Returned nearly $400 million to shareholders through dividends and share repurchase in the quarter.
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Key Q&A
Q:What are the offsets in the back half for the PS segment given the rise in memory costs?
A:Karen Parkhill stated that input costs are expected to rise in the back half, and the benefit of lower-cost inventory from strategic positions will reduce. Operating margins are expected to be below the long-term range for the rest of the year. However, mitigation actions are being executed, and there could be upside if these actions are effective or the environment improves. Cost reduction efforts will continue into FY '27.
Q:Is the playbook for margin resilience in print similar to that in PS?
A:Karen Parkhill confirmed that the playbook is similar to what was executed in Q2 and will continue in the back half of the year and beyond. Ketan Patel added that the mitigation strategy includes leveraging supply chain scale, silicon diversity, cost actions across commodity baskets, and demand shaping to optimize platforms and configurations.
Q:How much of the first half commercial strength in Personal Systems was due to pull-forward dynamics versus durable underlying demand?
A:Karen Parkhill mentioned that there was some pull-forward in Commercial PS, which added roughly 2% to 3% of revenue. The double-digit growth in Consumer and Commercial PS was supported by disciplined pricing, a richer mix, and continued services expansion.
Q:What is the EPS baseline for fiscal '27, and are there opportunities for EPS growth?
A:Karen Parkhill stated that it is too early to give guidance for fiscal '27 as the planning process is ongoing. However, Q4 PS margins are expected to reach a low point, with sequential improvement anticipated thereafter.
Q:How is demand elasticity expected to evolve in the second half of the year and into 2027?
A:Karen Parkhill noted that unit TAM is expected to be down high teens in the second half due to rising prices and slight pull-forward in Q2. Revenue is expected to be offset by increased prices, a richer mix, and higher attach businesses. Ketan Patel added that Windows 11 refresh and AI at the edge are expected to drive commercial demand.
Q:What drove the 9% year-over-year increase in OpEx, and is it sustainable?
A:Karen Parkhill explained that OpEx was flat as a percentage of revenue year-over-year. The increase was due to investments in innovation, product promotion, and people while maintaining cost discipline. OpEx is expected to remain roughly flat as a percentage of revenue going forward.
Q:What is the ability to access new or incremental memory sources to offset pricing pressures?
A:Ketan Patel stated that memory and storage needs for the fiscal year have been secured through strong supplier relationships and long-term agreements. Strategic inventory positions and disciplined pricing and cost actions are helping to remain cost-competitive.
Q:Is there a correlation between higher PC pricing and reduced spending on print hardware and supplies?
A:Karen Parkhill noted that enterprises are currently prioritizing PC over print, but print usage trends remain strong. There has been less decline in office print over the last three quarters.
Q:What drove the better-than-expected supplies revenue trajectory, and what are the expectations for the rest of the year?
A:Karen Parkhill explained that supplies revenue was flat year-over-year in constant currency, driven by pricing, share gains, and offsetting headwinds from a lower installed base. Supplies revenue is expected to decline low single digits in constant currency for the fiscal year and continue to decline low to mid-single digits over the long term.
Q:What are the expectations for print margins in Q4, and are tariff refunds included in the guidance?
A:Karen Parkhill stated that Q3 print margins are expected to be near the lower end of the long-term range due to seasonality, increased hardware placements, and rising oil-related costs. Improvement is expected in Q4, with solid margins for the full fiscal year. Tariff refunds are not currently applicable as the government is not processing refunds for complex multinational companies.
Q:What drove the geographic performance, particularly the acceleration in APJ?
A:Karen Parkhill attributed the growth in EMEA and APJ to Windows 11 tailwinds, with roughly 30% of the installed base still on Windows 10. Ketan Patel added that structural demand for AI PCs and premium PCs is strong across geographies.
Q:What is the outlook for memory and storage supply for fiscal '27?
A:Ketan Patel stated that the same process used to secure memory and storage for fiscal '26 will be applied for fiscal '27. This includes strong supplier relationships, long-term agreements, and qualifying new suppliers.
Q:How significant are rising resin costs, and are they manageable?
A:Karen Parkhill noted that rising resin costs are not too significant and are built into the outlook. The impact is manageable.
Q:Are there any ripple effects from data center server CPU strength on CPU supply for the second half?
A:Ketan Patel stated that the required CPU supply has been secured, and silicon diversity helps mitigate supply and pricing challenges. Small core constraints have been managed since the beginning of the year.
Q:What is the outlook for agentic AI in the client and edge compute space?
A:Ketan Patel highlighted the shift towards AI at the edge due to benefits like latency, privacy, and cost. HP is innovating on AI execution platforms and partnering with over 150 software partners to capitalize on this opportunity. Karen Parkhill added that AI PC shipments increased from 35% to 44% this quarter and are expected to reach 60%-70% next fiscal year.
Q:How is the move towards subscriptions progressing in print and PC?
A:Karen Parkhill mentioned strong traction in print subscriptions, particularly the All-In Plan, which is expected to expand outside the U.S. next year. Ketan Patel added that Flex PC simplifies financing for consumers, making procurement easier.
Q:What is the impact of price elasticity on Consumer PC and print businesses?
A:Karen Parkhill stated that lower unit demand is expected due to price increases, including in Consumer. Ketan Patel added that demand is expected to decline in low-end units while remaining strong in mainstream and premium price bands.
Q:Are memory and HDD prices locked in for the rest of the year?
A:Karen Parkhill confirmed that supply is secured for the rest of the year, but prices are not locked in for the long term to benefit from potential price stabilization or decreases.
Q:Review of Unclear Management Responses
A:Management avoided providing specific guidance for fiscal '27 EPS, stating that it is too early in the planning process. Additionally, they did not quantify the impact of rising resin costs as a percentage of the bill of materials, citing that it is manageable and built into the outlook.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI PCs
AI edge
AI workload
CEO
Future Work
Solutions
Today
WXP
Workforce
approach
commitment
context
country
customer demand
design
device software
document
edge AI
employee
innovation
intelligence
latency
layer
leader
measure today
memory storage
model
partner
pressure memory
production
result environment
search
supplier relationship
team
technology
today opportunity
tool
workflow
workload edge
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The earnings call highlights several negative factors: declining PC and print markets, rising memory and resin costs, and below-target operating margins. Although there are strategic plans to offset these challenges, such as pricing actions and new supplier agreements, the guidance remains weak with EPS expectations at the lower end. The Q&A section reveals concerns about rising costs and unclear future guidance, further dampening sentiment. Despite some positive elements like AI demand and Windows 11 tailwinds, the overall outlook is negative, likely leading to a stock price decrease of 2% to 8%.
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The earnings call summary indicates positive sentiment with strong financial metrics, a dividend increase, and a focus on AI integration and cost savings. Despite higher memory costs, the company has mitigated risks with secured supplies and pricing strategies. Shareholder returns, including increased dividends and share repurchases, add to the positive outlook. The Q&A reveals confidence in navigating challenges and gaining market share. Overall, these factors suggest a positive stock price movement in the short term.
HPQ Slides
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