HP beats analyst estimates with fiscal fourth-quarter earnings

HP's FQ4 2019 results outperformed analyst expectations.

On Tuesday, HP posted better-than-expected financial results for the quarter ending October 31. The Palo Alto, California-based corporation generated $15.4 billion in revenue during the period, beating analyst estimates of $15.25 billion. As such, the company experienced an annual growth rate of 0.3 percent, its first increase in sales in a year and a half.

HP made $.60 per share in the fiscal fourth quarter, topping Wall Street’s forecast of $.58. Consequently, the firm’s decision to reject Xerox’s aggressive acquisition proposal seems very wise.

PC Sales Leading the Way

Despite outpacing predictions, the electronics manufacturer is still struggling financially. In the fourth quarter, the company brought in $388 million in net income. Comparatively, the corporation had sales of $1.5 billion in the same frame last year. However, the company has seemingly found a way to reverse its economic fortunes.

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Like many legacy brands, HP has experience softening revenue due to technological disruption. The firm’s once ultra-lucrative printing segment has taken a hit in the face of the paperless revolution. Indeed, that division of the company brought in just under $5 billion in FQ4 2019, a decline of six percent year-over-year.

That said, the firm has taken recent steps to evolve its brand beyond its traditional core business. In recent years, the manufacturer has become North America’s largest manufacturer of personal computers. Though the firm still trails Lenovo worldwide, it captured 23.8 percent of the global market with its premium enterprise laptops.

With features like antiglare etching, 4G LTE modems, and built-in privacy screens, HP has become the brand of choice for peripatetic business people.

In FQ4 2019, HP’s personal computer unit generated $10.4 billion in revenue, an annual increase of 3.6 percent. Moreover, the firm expects its robust PC business to push its full fiscal year earnings from $2.24 to $2.32 per share. Accordingly, it forecasts profits of $.53 to $.56 per share in FQ1 2020.

CEO Enrique Lores told CNBC that his firm is so confident in the strength of its products that it is prepared to compensate for the new Chinese import tariffs coming in December.

Why HP was Right to Turn Down Xerox’s Offer

Earlier this month, Xerox offered to buy HP for $33.5 billion. Though the office equipment maker’s proposal represented a 29 percent premium on its rival’s 30-day average stock price, HP declined. Lores and HP Chairman Chip Bergh argued that Xerox undervalued their company and lacks a positive long-term financial outlook.

Notably, the copier company has grappled with declining revenues since June 2018. Moreover, Xerox’s market share is around a third of that held by its potential new subsidiary. Indeed, the corporation reportedly planned to use a bank loan to facilitate the tie-up.

Ultimately, Xerox’s proposal only featured one truly appealing aspect—an annual synergistic cost savings of $2 billion. Yet, as HP has already launched a multiyear, cost-saving restructuring plan, it doesn’t need a merger to stay aloft. Indeed, given its gradual transformation into a thriving PC company, a tie-up with Xerox would’ve only saddled it with unnecessary debt.