HP’s Q1 revenue grew 7% and beat expectations, but rising storage chip prices dragged down its earnings outlook; shares dropped nearly 7% after hours | Earnings Report News

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HP released its financial results for the first quarter of fiscal year 2026: net revenue of $14.44 billion, up 6.9% year-over-year, about 3.2% above analysts' estimates of $13.9 billion; non-GAAP earnings per share of $0.81, up 9.5% from $0.74 last year, and about 5.3% higher than the market consensus of $0.77.

The main driver behind HP’s better-than-expected performance was its Personal Systems business, with PC revenue growing strongly by 11% year-over-year to $10.25 billion. Consumer PC saw an even faster growth rate of 16%. The continued growth of AI PC was a key driver.

However, printing business revenue declined 2.2% year-over-year to $4.19 billion, with consumer printing plummeting 8%. More worrying to investors is the company’s forward guidance. HP expects non-GAAP earnings per share in the second quarter to be in the range of $0.70 to $0.76, with the midpoint $0.73 below market expectation of $0.75.

CFO Karen Parkhill stated bluntly that as memory costs continue to rise, although the company maintains its full-year guidance, the actual results are "likely to be toward the lower end of the range." Acting CEO Bruce Broussard described the current situation as "facing industry-level headwinds."

After the earnings report, HP’s stock price quickly dropped in after-hours trading, with a decline approaching 7%.

Outlook: Memory price hikes are the biggest variable, guidance midpoint below expectations

The main disappointment for the market in this earnings report centered around the forward guidance.

The second quarter non-GAAP EPS guidance range is $0.70 to $0.76, with the midpoint $0.73 lower than the market expectation of $0.75; GAAP EPS is guided at $0.52 to $0.58.

Management has clearly identified “rising memory costs” as the most important macro headwind. The CFO said the company is “good at dealing with headwinds,” but in a “dynamic environment,” is currently inclined to position the full-year results at the lower end of the guidance range.

For the full year, the company maintains its non-GAAP EPS guidance range of $2.90 to $3.20, with the midpoint $3.05 slightly higher than the market expectation of $3.00. However, the wording of “tending toward the lower end of the range” essentially amounts to a mild guidance downgrade. GAAP full-year EPS guide is $2.47 to $2.77.

Analysts currently expect HP’s revenue to decline by 2.1% year-over-year over the next 12 months. Between short-term AI PC catalysts and medium-term pressures from memory costs, HP’s path to valuation recovery remains clearly hampered.

Personal Systems: AI PC drives outperformance, but structural pressures remain

The Personal Systems business was the highlight of the quarter, and the only core segment to achieve double-digit growth.

Quarterly revenue was $10.25 billion, up 11% year-over-year (9% excluding currency effects), about 5% above analysts’ expectation of $9.76 billion.

Breaking it down: Commercial PC revenue grew 9%, consumer PC grew 16%; on units shipped, total units rose 12% year-over-year, consumer PC units rose 14%, commercial PC units grew 11%.

The continued penetration of AI PC was the key driver behind Personal Systems’ outperformance this quarter. HP management repeatedly emphasized “the sustained momentum of AI PC” in the earnings report, calling it a core tool in the execution of its “future work strategy.”

From an industry perspective, corporate PC replacement cycles are accelerating, combined with the looming end of Windows 10 support bringing renewed demand, providing solid demand foundation for the commercial PC market in the short term.

However, in terms of profitability, Personal Systems business operating margin was only 5.0%, reflecting a thin-margin business model. Thus, such strong growth has limited effect on overall profit.

Additionally, cyclical increases in storage chip prices are squeezing the cost side of the business. This is a direct reason why management downgraded guidance to the lower end for the full year.

Printing Business: High margin cannot offset persistent decline

The printing business contributed an operating margin of 18.3% this quarter, serving as an important stabilizer for overall profitability. However, the revenue downturn is hard to ignore.

Quarterly printing revenue was $4.19 billion, down 2% year-over-year (down 3% on fixed exchange rates). Consumer printing fell 8%, commercial printing declined 3%, core supplies revenue decreased 1% year-over-year, and total hardware shipments fell 6%.

Over a longer period, HP’s commercial printing business has averaged a 3.3% year-over-year decline over the past two years, pointing to structural contraction pressures in this segment.

The acceleration of digital office adoption and long-term shrinkage in corporate printing demand means that printing—once a “money maker”—is increasingly losing its growth momentum. Although high margins can still contribute a substantial profit pool to the group, its drag effect on revenue growth is gradually becoming apparent.

Cash Flow and Capital Allocation: Free cash flow remains low, buybacks continue

This quarter, HP generated $383 million in cash from operations; free cash flow was $175 million. Compared to over $14.4 billion in revenue, free cash flow conversion rate was only about 1.2%, at a relatively low level and flat year-over-year.

Despite limited cash generation, HP has maintained an aggressive capital return pace.

This quarter, HP repurchased 13.3 million shares for $325 million, and paid a cash dividend of $0.30 per share, totaling about $277 million. Altogether, HP returned about $600 million to shareholders this quarter. At quarter-end the company held $3.2 billion in cash and equivalents.

For the full year, HP expects free cash flow to be between $2.8 billion and $3.0 billion, but has signaled it will lean toward the lower end of the range. This guidance, combined with expectations for rising storage costs, means cash flow pressures in the second half of the year should be closely monitored.

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