2023-11-28 00:25:32 ET
Summary
- HP Inc.'s Q4 confirmed the ongoing demand slowdown globally.
- HP Inc. increased its dividend in Q4 and the dividend appears well covered based on Free Cash Flow.
- Turnaround is likely to be slow, and paying down debt should be of high priority meanwhile.
HP Inc. ( HPQ ) recently declared its FQ3 2023 results as Seeking Alpha has reported here . In my previous coverage of HP Inc., I had raised concerns about the company's overall situation including macroeconomic conditions, turnaround concerns, and high debt. Since then, the stock has lost about 1% compared to the market's 2% gain. How do things look after Q4? Let's find out in HP Inc.'s edition of The Good, The Bad, The Ugly.
The Good
- At the end of Q3, HP Inc. guided for $3 billion in FCF for FY 2023 but ended up reporting $3.1 billion. In other words, FCF for Q4 came in at $1.9 billion when the guidance was for $1.8 billion. This is especially good news when you consider that with 994 million shares outstanding , HP Inc. needs $1.093 billion in annual FCF to meet its dividend commitment to shareholders. That means HP Inc. has an impressive payout ratio of 35% based on its 2023 FCF.
- Speaking of dividends, although this is not directly related to Q4 report, HP Inc. did increase its annual dividend to $1.10/share as I had predicted during the Q3 review . Thanks to that and the stock's relative weakness over the last year (down 5%), HPQ now yields close to 4% and the dividend appears well covered based on the FCF numbers covered above.
- HP Inc. retired about 15% of its long-term debt in FY 2023, although Q4 showed a slight uptick in debt by $18 million. This now places HP Inc.'s total long-term debt at $9.25 billion, which is still significant for a company with $28 billion market capitalization. However, HP Inc. also has about $3 billion in cash and equivalents, which should negate any concerns about liquidity.
- Although revenue slowed down YoY (covered below), things are starting to look up a little for HP Inc. on a QoQ basis as covered here by Seeking Alpha. Personal systems and printing segments revenue went up 5.20% and 3.60% respectively in Q4 compared to Q3. It remains to be seen whether this is the beginning of a new upcycle in demand.
The Bad and The Ugly
- Q4 marked the 6th consecutive quarter that HP Inc. missed revenue expectations. And this is not a high-flying company with ever-increasing expectations that we are talking about. Expectations are fairly tempered with HP Inc. and to record 6 consecutive misses despite that is quite concerning.
- Sticking with revenue, Q4 once again saw revenue slowing down across the board with the printing segment declining 2.5% YoY and personal systems declining 8.2% YoY. On an annual basis, FY 2023 saw a 4.6% and 18.90% YoY decline in the two segments respectively.
For further details see:
HP Inc. Q4 Earnings: Painful Slowdown With Likely A Slow Turnaround