HP sees strong quarter as cost cuts, China recovery boost profit

(Reuters) -HP Inc on Tuesday forecast second-quarter adjusted profit above estimates and maintained its full-year earnings target, expecting to benefit from cost cuts and a recovery in demand in the China market.

Lifting of lockdowns in China, a key market as well a dominant supplier of electronics components, is supporting the outlook at hardware suppliers such as HP (NYSE:) even as overall demand remains weak.

“China is evolving into the most positive scenarios,” Chief Executive Enrique Lores told Reuters in an interview, after HP’s business suffered last year from supply chain disruptions and consumers deferring upgrades to PCs and printers due to high inflation.

HP forecast second-quarter adjusted per share earnings between 73 cents and 83 cents, above analysts’ average estimate of 76 cents. It also maintained its adjusted profit target of $3.20 to $3.60 per share for fiscal 2023.

The company’s strong profit forecast overshadowed mixed January-quarter results.

Revenue fell nearly 19% drop in the first quarter to $13.8 billion, the steepest drop since 2016, and missed analysts’ average estimate of $14.12 billion, according to Refinitiv data.

Adjusted per share earnings of 75 cents, however, came in slightly above the average estimate of 74 cents.

Lores said there was a “slowdown” in orders from businesses, as companies are now becoming “much more careful in how they manage budgets.”

HP said revenue from the personal systems unit, which includes computers and notebooks, will decline by high single-digit percentage sequentially in the second quarter.

PC shipments are expected to be down 6.8% this year, compared with a 16% decline last year, according to projections by market research firm Gartner (NYSE:).

In the event of a mild recession in 2023, there will be further pressure on consumer budgets, which may delay HP’s plans to normalize its inventory levels, said Gartner’s Mikako Kitagawa.