HP Inc. Revenue Down by 11% Due to COVID-19

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HP Inc. Revenue Down by 11% Due to COVID-19

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HP Inc. (NYSE: HPQ) on 27th May 2020 announced the result for the second quarter of 2020. The period of this quarter ended on 30 Shut down of production and disruption in the supply chain has impacted the revenue of the company. Revenue in Q2 2020 has declined by 11.16% over a year.

Financial Highlights of Q2 2020 Results:

  1. Revenue: Company was able to generate revenue of $12,469 million in Q2 2020, down by 11.16% from $14,036 million in Q2 2019.
  2. Gross Profit: Gross profit earned by the company in Q2 2020 was $2,493 million, declined by 9.46% from $2,729 million in Q2 2019.
  3. Gross Margin: HPQ gross margin in the second quarter of 2020 and 2019 was 19.99% and 19.44% respectively.
  4. Total costs and expenses: Total cost and expenses occurred by the company in Q2 2020 were $11,643 million, declined by 11.17% from $13,108 million spent in the second quarter of 2019.
  5. Operating Income: The Company’s operating income in the second quarter of 2020 was $826 million, down by 10.99% from $928 million earned in the same period year ago.
  6. Operating Margin: HPQ’s operating margin in the second quarter of 2020 and 2019 was 6.62% and 6.61% respectively.
  7. Cash and cash Equivalent: Cash and cash equivalent as the end of Q2 2020 was $4,054 million.
  8. Net Profit: HPQ’s net profit in the second quarter of 2020 was $764 million, declined by 2.3% from $782 million earned in the same period of the previous year.
  9. Diluted EPS: Diluted EPS of the company in Q2 2020 was $0.53 compared to $0.51 in Q2 2019.
  10. Dividend per share: HPQ has paid a cash dividend of $0.1762 per share in Q2 2020.
Source: Business Quant

Fight against COVID-19

To protect the health and safety of the employees in this crisis, HP has allowed most of the employees to work from home. Employees who are working on the production and cannot work remotely, the company is taking all the measures to protect their health and safety, social distancing norms along with the cleaning protocol have been implemented by the company.

HPQ has spent $2.3 million for 3D printing of face shields, face masks, respirators, ventilators, and other items that are distributed to the hospital. HP and HP foundation has donated millions of dollars in technology grand to felicitate distance learning education among teacher and students.

On 2nd April 2020, HPQ launched Partner & Customer Relief Initiatives. Under this incentive, HP Sure Click Pro is available free of cost till 30th September 2020. The company is all conducting webinars to help clients set up their offices at home. In this incentive, the company has reduced/ deferred payments from its customers till 2021.

Segment Information

The company operates its business in two different segments. Both the segments have witnessed a decline in revenue over a year due to shut down of operation in china from the first day of January till late February. In March, the company started facing supply chain disruption in south Asia and other parts of the world as a pandemic impact started spreading globally.

  1. Personal Systems: This segment represents approximately 67% of the total revenue generated by the company in Q2 2020. In this quarter this segment was able to generate $8,313 million, down by 7% from $8,921 million generated in Q2 2019. Net revenue of notebook remain flat but net revenue of desktop and workstation station declined by 18% and 23% respectively. Total units were down by 5%, notebook unit was up by 5% and desktop unit was down by 23%.As most of the people are working from home and students are pursuing online education, demand for the laptops increased which provided the opportunity to the company to increase the revenue. In this quarter company launched a new range of ZBook, Envy notebooks, and new enterprise Chromebooks.
  2. Printing: Revenue generated by this segment in Q2 2020 was $4,158 million, down by 19% from $5,116 million generated in the Q2 2019. This segment has contributed approximately 33% of the total revenue. Net revenue of commercial hardware unit and consumer hardware unit declined by 31% and 16% respectively. The total hardware unit was down by 23% with commercial hardware unit and consumer hardware unit down by 25% and 22% respectively.This segment has been a revenue-generating segment for the company, as HPQ sells printer and high margin ink cartridges to its customer. This segment saw a decline in revenue as the printing business was hit due to shut down of offices from March and the cancellation of trade events. Commercial hardware and consumer hardware were hit as the company was unable to fulfill the orders due to supply chain disruption. On the positive side demand for instant ink increased as people have set up offices at home and school environments.

HPQ Rejects Exchange offer from Xerox

On 5th March 2020, the Board of Directors of HP after discussion from independent financial and legal advisers rejected the offer from Xerox to acquire all outstanding common shares of HP at $ 35 billion. HPQ feels that this will undervalue the company and will benefit the shareholders of xerox. Merger will create uncertainties and risk. Xerox does not have experience in some of the segment on which HPQ operate such as personal systems, home printing, and 3D and digital manufacturing.

Final Take

Company in its guidance claims that it will EPS between $0.35 to $0.41. HPQ is selling all the hardware which was in the backlog in the second quarter of 2020 in the next quarter of the same year. As some companies such as twitter, google, visa and Facebook are not in hurry to call the employees in the office and some of the schools scheduled to reopen, demand for laptops and monitors may increase. In the printing segment, revenue growth may decline as business and offices may not start functioning completely by the end of next quarter.

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