HP Has a Good Quarter, While Xerox Plans to Go Hostile

November 27, 2019, 12:26 AM UTC

HP Inc.’s latest quarterly results were good enough to please investors, who are eagerly watching how the Silicon Valley technology giant plans to deal with Xerox’s aggressive bid to take over the company.

The personal computer and printing giant said Tuesday it brought in $15.4 billion in its fiscal fourth quarter, beating analyst estimates of $15.3 billion. The company also said that fourth quarter earnings per share were 60 cents, topping analyst expectations that the company would report profits of 58 cents a share. 

As a result, HP shares were up 1.6% in after-hours trading to $20.37.

It was a particularly important quarter for HP, considering Xerox on Tuesday said it would reach out to HP shareholders in order “to solicit their support in urging the HP Board to do the right thing and pursue this compelling opportunity.” HP’s board of directors previously rebuffed Xerox’s bid to take over the company, saying that they wanted “access to diligence information” from Xerox to evaluate a potential deal that would likely not involve being acquired by the smaller company.

HP Inc. CEO Enrique Lores told analysts during an earnings call that he would not comment further on Xerox, beyond what HP has already publicly stated. But it was clear from his multiple comments emphasizing HP’s plans to create “long-term value creation for shareholders” that Xerox is on his mind. 

“We know how to manage through the current dynamic, which is exactly what we have been doing for the past year,” Lores said. 

When an analyst asked HP executives about what the company’s board is thinking about these days, in light of Xerox and what the company plans to use its finances for in the near future, HP CFO Steve Fieler said it is evaluating potential mergers and acquisitions or “additional return of capital” to shareholders.

Fieler also said that HP announced a voluntary early retirement program as part of a restructuring program in its fourth quarter, and has “more than 1,000 participants” signed up. 

Still, HP faces some significant challenges next year, particularly the company’s important printing supplies business, which is its most profitable unit, and is closely watched by analysts. Commenting on HP’s printing supplies business, Lores noted that HP faces challenges in India, particularly due to “aggressiveness of the clone competition,” referring to Asian ink makers who have been undercutting HP on price.

HP’s overall printing sales dropped 6% year-over-year to $5 billion in the fourth quarter. The company’s printing supplies business declined 7% year-over-year in the fourth quarter to $3.2 billion, underscoring HP’s ongoing dilemma in reviving its ink and supply business. 

But despite the printing challenges, Lores repeatedly emphasized that current HP management knows how to steer the company amid the challenging PC and printing market.

“I’d like to emphasize the confidence we have on our strategy and the multiple levers we have to create value,” Lores said. 

Xerox management seemingly disagrees.

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