HP layoffs could set the stage for a big profit boost: Citi analyst

HP Inc. (HPQ) is looking to get leaner amid an ongoing slowdown in demand for PCs and printers, and that could unleash a lot of future earnings power, analysts contend.

Late Tuesday, the tech giant revealed a new $1.4 billion cost-cutting plan that will see it shed 4,000 to 6,000 employees by fiscal year 2025. That’s about 12% of HP’s workforce.

“To put this in context, that is $0.50 of EPS help in fiscal year 2023 and over $1 of EPS exiting fiscal year 2025 and we believe that is a big positive that investors did not expect,” Citi analyst Jim Suva wrote in a note to clients on Wednesday.

Hewlett-Packard inks are seen on display in Mountain View, Calif. (AP Photo/Paul Sakuma, File)

HP CEO Enrique Lores told Yahoo Finance Live (video above) that the cost cuts come against the backdrop of a “tough market environment.”

HP saw fiscal fourth-quarter sales fall 11.2% from a year ago, pushed lower by a 26% decline in the number of notebook computer units sold. Meanwhile, desktop unit sales fell 3% in the quarter and consumer printer unit sales fell 4% while commercial gained 5%.

Despite the sales drops, the company beat analyst forecasts across the board.

  • Net Sales: $14.8 billion vs. $14.65 billion estimated

  • Personal Systems Sales: $10.3 billion vs. $10.28 billion estimated

  • Printing Sales: $4.5 billion vs. $4.41 billion estimated

  • Diluted EPS: $0.85 vs. $0.84 estimated

HP shares rose 1.8% on Wednesday as the Street viewed the cost-cutting plan favorably. The company’s ticker page was among the top five most visited on the Yahoo Finance platform.

Looking ahead, the company took a cautious stance for its new fiscal year after the challenging quarter.

For its first fiscal quarter, HP sees EPS in a range of $0.70 to $0.80. Analysts had estimated earnings of $0.86 per share in the current quarter.

The company is also modeling for full-year earnings of $3.20 to $3.60 a share. Wall Street had been estimating full-year earnings of $3.61 per share.

Lores noted that the outlook does not factor in any further changes in the macroeconomic backdrop.

Economic headwinds are likely to continue into next year, Deutsche Bank analyst Sydney Ho agreed, noting: “Market remains challenging, but margins should improve in the second half of fiscal year 2023.”

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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