[SEATTLE] HP dropped about 15 per cent in extended trading after the company’s profit outlook fell short of estimates and it cut the annual earnings forecast, pointing towards a weaker economy and continuing costs from US tariffs on goods from China.
Earnings, excluding some items, will be 68 US cents to 80 US cents a share in the period ending in July, the maker of computers and printers said on Wednesday (May 28). Analysts, on average, estimated 91 US cents.
Fiscal second-quarter profit was 71 US cents a share, compared with the average estimate of 81 US cents. Profit was dented by 12 US cents from the impact related to tariffs and HP’s spending to move manufacturing out of China, said chief financial officer Karen Parkhill.
Demand for computers is being hurt by rising economic uncertainty tied to tariffs, the impact of which was greater than the company expected when it gave its earlier forecast, chief executive officer Enrique Lores said.
The company is boosting production in Vietnam, Thailand, India, Mexico and the US. By the end of June, almost all products sold in North America will be made outside of China, he said. Still, the PC market will grow at a more moderate pace because of the slowing economy.
HP reduced its annual adjusted profit outlook to US$3 to US$3.30 a share from a previous forecast of US$3.45 to US$3.75 a share.
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“Clearly the economic environment is very different now from what it was in February and consumer and some business confidence has clearly changed,” Lores said.
Apart from a weaker economy, industrywide price increases are hurting demand, he said. “We thought it was important to be prudent.”
The stock closed at US$27.20 in New York and has declined 16 per cent this year.
In the quarter ended Apr 30, revenue increased 3.3 per cent to US$13.2 billion, slightly above the average estimate of US$13.1 billion.
A recovery in the long-ailing personal computer market has started to materialise in recent quarters, but tariffs are derailing progress. Shipments of PCs ticked up 4.9 per cent in the March quarter, according to IDC, an industry research firm. Some of that may be due to customers making purchases ahead of US President Donald Trump’s tariffs announced on Apr 2, the market research firm said.
Revenue in HP’s personal system business, which includes PCs, increased 7 per cent to US$9 billion. Analysts, on average, estimated US$8.8 billion.
Lores said HP saw a “fairly small” impact from customers moving up purchases.
“We expect to fully mitigate the increased trade-related costs” by the fourth quarter, he said. BLOOMBERG
