Personal computing and printing company HP (NYSE: HPQ) missed Wall Street’s revenue expectations in Q1 CY2025 as sales rose 3.3% year on year to $13.22 billion. Its non-GAAP EPS of $0.71 per share was 11.6% below analysts’ consensus estimates.
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HP (HPQ) Q1 CY2025 Highlights:
- Revenue: $13.22 billion (3.3% year-on-year growth)
- Adjusted EPS: $0.71 vs analyst expectations of $0.80 (11.6% miss)
- Management lowered its full-year Adjusted EPS guidance to $3.15 at the midpoint, a 12.5% decrease
- Operating Margin: 4.9%, down from 7.4% in the same quarter last year
- Market Capitalization: $25.64 billion
StockStory’s Take
HP’s first quarter results reflected a mix of growth in its Personal Systems segment and ongoing operational challenges, particularly from new tariff costs. Management highlighted that commercial PC demand and the company’s expansion into high-value categories were central to top-line growth. CEO Enrique Lores noted, “We saw strong growth in personal systems, particularly in commercial and high-value categories, driving momentum in our key growth area.” However, the quarter’s operating profit was negatively affected by additional tariffs that could not be fully mitigated, with management citing a roughly $0.12 per share impact on non-GAAP earnings. Lores described the external landscape as “highly dynamic,” pointing to shifting trade policies as a primary factor behind the shortfall in profitability.
Looking forward, HP’s updated guidance is shaped by continued uncertainty in the global trade environment and macroeconomic conditions. Management expects the recently accelerated supply chain rebalancing and pricing actions to help restore margins by the end of the year, though they stressed that the pace of PC market recovery remains uncertain. CFO Karen Parkhill stated, “We believe it is prudent to moderate our guidance for the second half of the year to reflect” evolving trade policy and demand trends. The company also anticipates that its ongoing Future Ready cost savings program and the growing role of AI PCs will be key contributors to performance in the coming quarters.
Key Insights from Management’s Remarks
Management attributed the quarter’s top-line growth to commercial PC momentum and high-value mix shifts but emphasized that unmitigated tariffs and manufacturing adjustments weighed on margins.
- Commercial PC segment momentum: Personal Systems revenue growth was led by strong commercial demand, especially in North America and Asia, with notable gains in premium, workstation, and AI-enabled PCs (AIPCs). Management credited the Windows 11 refresh cycle and increased enterprise adoption for driving performance.
- Tariff-related cost headwinds: The introduction of new tariffs increased costs by an estimated 100 basis points on non-GAAP operating profit, mainly affecting the Personal Systems segment. Management responded by accelerating supply chain diversification, but these actions only partially offset the impact during the quarter.
- Manufacturing footprint diversification: HP significantly expanded production outside China, increasing output from Vietnam, Thailand, India, Mexico, and the US. By the end of June, nearly all products sold in North America are expected to be manufactured outside China, according to CEO Lores.
- Print division performance split: Print revenue declined as expected, with growth in Europe offset by continued weak demand in China and North America. The company emphasized gains in home printer units and the success of its “big tank” product line, as well as growth in consumer subscriptions and industrial printing solutions.
- Cost control and operational agility: HP drove down non-GAAP operating expenses year-over-year through process efficiency, automation, and portfolio optimization. The company’s Future Ready program is now expected to deliver at least $2 billion in annualized structural savings by year-end, supporting strategic investment despite external headwinds.
Drivers of Future Performance
Management’s outlook for the next few quarters centers on mitigating tariff costs, driving AI PC adoption, and executing operational savings programs to offset macroeconomic uncertainty.
- Tariff mitigation and supply chain shifts: The company expects to fully offset current tariff-related costs by the end of the year through accelerated supply chain reconfiguration, targeted pricing actions, and additional cost-cutting. Management emphasized that manufacturing outside China will provide greater operational flexibility if trade policies evolve further.
- AI PC adoption and premium mix shift: HP anticipates that AI-enabled PCs (AIPCs) will comprise over 25% of PC shipments by year-end, boosting average selling prices and gross margins. CEO Lores stated that “AI PCs are between 10% and 20% higher priced than regular PCs,” projecting this mix shift as a multi-year growth driver.
- Cost discipline and Future Ready program: The ongoing Future Ready program aims to deliver $2 billion in annualized structural savings by year-end through organizational streamlining, IT consolidation, and portfolio optimization. Management expects these savings to help maintain profitability and enable continued investment in strategic growth areas, even as industry-wide demand remains uncertain.
Catalysts in Upcoming Quarters
In the coming quarters, the StockStory team will monitor (1) the pace and effectiveness of HP’s supply chain transition out of China, (2) the adoption rate and pricing dynamics of AI-enabled PCs, and (3) progress toward the $2 billion annualized cost savings target under the Future Ready program. Additional factors include margin recovery in Personal Systems and Print as tariff mitigation efforts gain traction.
HP currently trades at a forward P/E ratio of 7.5×. Is the company at an inflection point that warrants a buy or sell? See for yourself in our full research report (it’s free).
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