HP Inc. (HPQ) is scheduled to report results of its fiscal second quarter after the market close on May 27, with a conference call scheduled for 5:00 pm ET. What to watch for:
1. GUIDANCE: Along with its last report, HP Inc. guided for Q2 earnings per share of 49c-53c. At the time, analysts were expecting the company to report Q2 EPS of 54c, but that figure has since slipped to 45c. Meanwhile, HP Inc. said at the time that it expected fiscal 2020 EPS of $2.33-$2.43. Analysts at the time were anticipating FY20 EPS of $2.26, but that figure has since fallen to $2.14.
2. VALUE CREATION PLAN: Also with its last report, HP Inc. announced a multi-year strategic and financial value creation plan that is expected to deliver $3.25 to $3.65 non-GAAP diluted net EPS by 2022. Under this value creation plan, HP expects to generate: $4.7B-$5.1B of non-GAAP operating profit in fiscal 2022; $10.7B-$11.7B of cumulative free cash flow in fiscal 2020 through fiscal 2022; and $1.2B structural cost reductions in fiscal 2022 with flow through to non-GAAP operating profit of approximately $650M. As part of HP's value creation plan for shareholders, HP's Board of Directors at the time authorized a capital return program that will target the return of capital of approximately $16B to HP shareholders during fiscal 2020 to fiscal 2022. This represents approximately 50% of HP's current market capitalization. In addition, the company increased its total share repurchase authorization to $15B, up from the $5B share repurchase authorization announced in October 2019.
3. XEROX: On March 31, Xerox (XRX) issued a statement saying that the global health crisis and resulting macroeconomic and market turmoil caused by the COVID-19 outbreak created an environment "not conducive" to the company continuing to pursue an acquisition of HP Inc. "Accordingly, we are withdrawing our tender offer to acquire HP and will no longer seek to nominate our slate of highly qualified candidates to HP's Board of Directors," Xerox said at the time. "While it is disappointing to take this step, we are prioritizing the health, safety and well-being of our employees, customers, partners and other stakeholders, and our broader response to the pandemic, over and above all other considerations. There remain compelling long-term financial and strategic benefits from combining Xerox and HP. The refusal of HP's Board to meaningfully engage over many months and its continued delay tactics have proven to be a great disservice to HP stockholders, who have shown tremendous support for the transaction."
4. PC SHIPMENTS: The global traditional PC market, comprised of desktops, notebooks, and workstations, declined 9.8% year over year in the first quarter of 2020, reaching a total of 53.2M shipments according to preliminary results from the International Data Corporation Worldwide Quarterly Personal Computing Device Tracker released in April. The stark decline after a year of growth in 2019 was the result of reduced supply due to the outbreak of COVID-19 in China, the world's largest supplier of PCs.
