HP Inc. Earnings Call Balances Growth With Cost Risks

HP Inc ((HPQ)) has held its Q1 earnings call. Read on for the main highlights of the call.

HP Inc.’s latest earnings call struck a cautious but constructive tone as management balanced solid execution with a tougher outlook for the rest of fiscal 2026. Strong revenue and EPS growth, share gains and rising AI PC momentum underscored the core franchise, yet an abrupt spike in memory costs and softer industry demand are expected to weigh on margins and limit upside.

Broad-Based Revenue Growth

HP reported first-quarter revenue of $14.4 billion, up 7% year over year and 5% in constant currency, with growth across all regions. The beat was led by Personal Systems, which outperformed expectations, helping offset modest pressure in the Print segment.

EPS at Top of Guidance

Non-GAAP diluted EPS rose 9% to $0.81, landing at the top of the company’s guidance range and signaling disciplined cost control. Gross margin reached 19.6% and non-GAAP operating margin 6.9%, showing HP can still expand profitability despite ongoing macro and component cost pressures.

Personal Systems Drives the Upside

Personal Systems revenue climbed 11% with unit growth of 12%, as both Consumer and Commercial PCs delivered solid gains. Consumer revenue grew 16% and Commercial 9%, with a PS operating margin of 5%, in line with guidance even before the full impact of memory inflation.

AI PCs and New Products Gain Traction

AI PC demand is becoming a meaningful growth driver, with AI-enabled systems now around 35% of total PC shipments and rising sequentially. HP is pushing innovation with launches such as the HP EliteBoard G1a and AI-powered scanning and redaction features in print, aimed at higher-value use cases.

Print and High-Value Services Mixed

Print results were broadly in line with expectations, as industrial print grew mid-single digits and 3D and industrial print posted double-digit gains. High-value offerings such as consumer print subscriptions and Big Tank printers in developed markets showed strong double-digit growth and rising share.

Platforms and Partnerships Deepen Moat

HP emphasized its strategic platforms, with its WXP fleet management system now processing data from roughly 50 million endpoints and over 1 terabyte daily. The company launched HP Digital Passport and broadened partnerships, including deeper integration with Microsoft Copilot in printers and an exploratory enterprise AI pilot with OpenAI.

Strong Cash Returns, Steady Capital Plan

The company generated about $400 million in cash from operations and roughly $200 million in free cash flow in the first quarter. HP returned more than $600 million to shareholders, including over $300 million in buybacks, while reiterating full-year free cash flow guidance of $2.8 billion to $3.0 billion.

Mitigating Supply and Cost Shocks

Management detailed an aggressive mitigation playbook to counter rising memory and component costs, including long-term supplier agreements and qualifying new vendors. HP has cut qualification time for new materials by around 50%, expanded lower-cost sourcing and accelerated broad productivity and cost-reduction programs.

Memory Inflation Becomes a Major Headwind

A sudden surge in DRAM and NAND prices has become the key earnings headwind, with HP estimating memory and storage will account for roughly 35% of the PC bill of materials this year, up from 15% to 18% historically. Memory prices rose about 100% sequentially into the second quarter, and management warned that further increases remain possible.

Personal Systems Margin Pressure Ahead

Given the memory shock, HP expects Personal Systems operating margins to run below its long-term target range for the rest of fiscal 2026. That margin drag is a key reason management now anticipates full-year EPS to land closer to the lower end of its $2.90 to $3.20 non-GAAP range despite solid first-quarter performance.

Print Revenue and Supplies Under Strain

Print revenue declined 2% year over year, with Consumer down 8% and Commercial down 3%, even as print operating margin held at a robust 18.3%. Supplies revenue slipped around 2% in constant currency, reflecting usage and installed base headwinds that pricing and share gains could not fully offset.

Industry Demand and Macro Uncertainty

HP remains aligned with industry forecasts that PC unit demand will fall by double digits in calendar 2026, raising the risk of slower revenue growth later in the fiscal year. Management acknowledged that softer end-market demand could compound commodity pressures, particularly in the back half.

Leverage and Inventory Under Watch

Gross leverage ticked slightly above the company’s target of around 2 times, reflecting prior capital returns and the timing of debt maturities. Inventory days also rose as higher commodity prices pushed up the dollar value of stock, but HP has maintained strong cash balances to manage upcoming obligations.

Timing and Visibility Risks

While HP reaffirmed its annual EPS and free cash flow ranges, management flagged limited visibility given volatile memory pricing and execution risk around cost actions. The company expects a first-half weighting of results, with potential moderation in the back half as mitigation measures and market conditions play out.

Leadership Transition Adds Uncertainty

The ongoing CEO transition and the decision to reschedule the planned April Investor Day add a layer of organizational and communication risk. Executives stressed continuity in strategy and operations, but investors will be watching closely for any impact on execution and capital allocation.

Guidance: Steady Ranges, Lower-End Bias

HP reiterated full-year non-GAAP EPS guidance of $2.90 to $3.20 and free cash flow of $2.8 billion to $3.0 billion but now expects results nearer the low end of both ranges. Second-quarter non-GAAP EPS is guided to $0.70 to $0.76 as the company absorbs sharply higher memory costs, while relying on pricing, supply deals and a targeted $1 billion cost-savings run rate by fiscal 2028 to protect profitability.

Looking ahead, HP is threading a narrow needle between strong operational execution and a tougher external backdrop marked by memory inflation and softer PC demand. The company’s ability to scale AI PCs, execute on cost and maintain robust cash returns will be central to whether its reaffirmed guidance proves conservative or optimistic in the year ahead.