HP Q1 revenue grew by 7%, exceeding expectations, but rising storage chip prices dragged down earnings outlook, stock price fell nearly 7% after hours | Earnings Report News

HP Reports Fiscal First Quarter 2026 Results, Revenue of $14.44 Billion, Up 6.9% Year-over-Year, Beating Analyst Expectations of $13.9 Billion by About 3.2%; Non-GAAP EPS of $0.81, Up 9.5% from $0.74 a Year Ago, Surpassing Market Consensus of $0.77 by About 5.3%.

The core driver of the better-than-expected performance comes from the Personal Systems business, with PC revenue up 11% YoY to $10.25 billion, including a 16% growth in Consumer PCs. The continued volume growth of AI PCs is a key catalyst.

However, the Printing business revenue declined 2.2% YoY to $4.19 billion, with Consumer Printing dropping 8%. More concerning for investors is the forward guidance. The company expects second quarter non-GAAP EPS in the range of $0.70 to $0.76, with a midpoint of $0.73, below the market expectation of $0.75 by about 5.3%.

CFO Karen Parkhill stated that, with memory costs continuing to rise, the company maintains its full-year guidance but expects actual results to “lean toward the lower end of the range.” Interim CEO Bruce Broussard characterized the current situation as “dealing with industry-wide headwinds.”

Following the earnings release, HP’s stock price dropped sharply after hours, approaching a 7% decline.

Outlook: Memory Price Increases Are the Biggest Variable, with Guidance Below Expectations

The market’s biggest disappointment with this earnings report centered on the forward guidance.

Second quarter non-GAAP EPS guidance of $0.70 to $0.76, with a midpoint of $0.73, is below the market expectation of $0.75; GAAP EPS guidance is $0.52 to $0.58.

Management explicitly cited “rising memory costs” as the most significant macro headwind. The CFO noted that, although the company is “adept at managing headwinds,” in this “dynamic environment,” the current inclination is to position the full-year results toward the lower end of the guidance range.

For the full year, the company maintains its FY2026 non-GAAP EPS guidance of $2.90 to $3.20, with a midpoint of $3.05, slightly above the market expectation of $3.00, but the wording of “leaning toward the lower end of the range” essentially signals a mild downward revision. The full-year GAAP EPS guidance is $2.47 to $2.77.

Analysts currently expect HP’s revenue to decline 2.1% YoY over the next 12 months. Between the short-term catalyst of AI PCs and the medium-term pressure from rising memory costs, HP’s valuation recovery path still faces significant hurdles.

Personal Systems: AI PCs Drive Outperformance, Structural Pressures Remain

The Personal Systems segment was the biggest highlight this quarter and the only core segment to achieve double-digit growth.

Quarterly revenue of $10.25 billion, up 11% (9% excluding FX), surpassing the analyst consensus of $9.76 billion by about 5%.

Breaking down by segment, commercial PC revenue grew 9%, consumer PCs grew 16%; in shipment volume, total units increased 12% YoY, with consumer PC units up 14% and commercial PCs up 11%.

The ongoing penetration of AI PCs is a key factor behind the outperformance of Personal Systems this quarter. HP management repeatedly emphasized “the sustained momentum of AI PCs” in the earnings call, framing it as a core execution focus of “future work strategies.”

From an industry perspective, enterprise PC refresh cycles are accelerating, coupled with the upcoming end of support for Windows 10, which creates a solid short-term demand foundation for commercial PCs.

However, in terms of profit quality, operating margin for Personal Systems is only 5.0%, indicating a relatively low-margin business. Significant growth in this segment has limited impact on overall profit.

Additionally, cyclical increases in storage chip prices are eroding margins, which is one of the direct reasons management has lowered the full-year outlook to the lower end.

Printing Business: High Margins Can’t Mask Ongoing Decline

The Printing segment contributed a high operating margin of 18.3% this quarter, serving as a key stability factor for overall profitability, but revenue decline is becoming increasingly evident.

Quarterly revenue of $4.19 billion, down 2% YoY (3% FX-adjusted), with consumer printing down 8%, commercial printing down 3%, core consumables revenue down 1% YoY, and total hardware shipments down 6%.

Looking at a longer cycle, HP’s commercial printing revenue has declined an average of 3.3% YoY over the past two years, indicating structural contraction.

The accelerated adoption of digital workflows and long-term decline in enterprise printing demand are gradually eroding this once “cash cow” business. While high margins still contribute significant profits, their drag on revenue growth is increasingly apparent.

Cash Flow and Capital Allocation: Free Cash Flow Remains Low, Share Repurchases Continue

This quarter, HP generated $383 million from operating activities, with free cash flow of $175 million. Relative to over $14.4 billion in revenue, free cash flow conversion is only about 1.2%, similar to last year.

Despite limited cash generation, HP maintains an active capital return program.

In this quarter, the company repurchased 13.3 million shares at a cost of $325 million, paid a $0.30 per share dividend totaling approximately $277 million, returning about $600 million to shareholders in total. At quarter-end, cash and cash equivalents stood at $3.2 billion.

Looking ahead, HP expects full-year free cash flow of $2.8 to $3.0 billion but has explicitly indicated a bias toward the lower end of this range. This outlook, combined with expectations of rising storage costs, suggests ongoing cash flow pressures in the second half that warrant close monitoring.

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