HP Lowers Full-Year Profit Guidance, Tariff Impact Drags on Profits, Shares Plunge 15% After Hours

Hewlett Packard released its financial results for the second quarter of the fiscal year 2025 on Wednesday, with revenue slightly exceeding expectations, but earnings per share falling short of market expectations, and a significant downward revision of the full-year profit guidance, leading to a post-market share price plunge of about 15%.

The second quarter revenue was $13.22 billion, representing a 3.3% increase year-over-year and higher than the analysts' expected $13.14 billion. However, the non-GAAP earnings per share were only $0.71, lower than the market expectation of $0.80, with tariff-related costs dragging down by about $0.12. The GAAP net profit was $406 million, a 33% decline year-over-year.

Hewlett Packard has revised its full-year non-GAAP earnings per share guidance down to a range of $3.00 to $3.30, significantly lower than Wall Street's previous expectation of $3.49. The third quarter guidance is $0.68 to $0.80, also below the analysts' expectation of $0.90. The company stated that the adjusted outlook reflects the additional costs brought by U.S. tariffs.

Tariff Impact is the Core Variable

The impact of tariffs on this quarter's performance is evident. Non-GAAP operating profit was dragged down by about 100 basis points, with the gross margin falling to 20.7%, a decrease year-over-year. The management clearly pointed out in the financial report that the quarter was affected by the "dynamic regulatory environment".

CEO Enrique Lores stated that the company has accelerated the shift of its manufacturing base from China, expanding its production capacity in Vietnam, Thailand, India, Mexico, and the United States. He expects that by the end of June, products sold to the North American market will essentially be manufactured outside of China.

Lores also stated that he expects the company to fully absorb the additional costs brought by the tariffs by the fourth quarter. However, before that, the company's profit margins will continue to be under pressure.

PC Business Shows Steady Growth, While Printing Business Remains Weak

By business segment, the personal systems department remains the main driver of growth. Revenue in this department increased by 7% year-over-year, with an 8% increase at constant currency, with commercial PC revenue increasing by 9%, benefiting from continued AI PC demand and the ongoing Windows 11 replacement cycle.

The printing business continued its downward trend. Revenue in this division decreased by 4% year-over-year, with the slowdown in demand in North America and the ongoing downturn in the Chinese market being the main reasons. The operating profit margin of the printing business is 19.5%, still significantly higher than the personal systems department.

Toner revenue decreased by 5% year-over-year, reflecting the structural contraction of printing demand from enterprise customers.

Cash Flow Under Pressure, Wall Street Lowers Expectations

Free cash flow for this quarter was negative $95 million, mainly due to the proactive increase in inventory in the previous quarter to deal with tariffs, leading to a shorter accounts payable cycle this quarter. The company has set its full-year free cash flow guidance at $2.6 billion to $3 billion.

Bank of America降低了 its third quarter forecast after the financial report and said it would adopt a more conservative stance on the full-year outlook, positioning its model forecasts at the lower end of the guidance range, that is, about $3.06 per share, citing tariff uncertainties, rising costs of production line migration, and a slowdown in PC replacement growth.

Hewlett Packard returned about $400 million to shareholders this quarter, including dividends and repurchases. However, due to debt refinancing leading to a temporary leverage ratio exceeding the target range, the repurchase size was limited to merely offsetting the dilution of equity incentives.