Shares of the personal computer and printer giant HP Inc. rose slightly in extended trading today after it reported earnings that came in just ahead of analysts’ estimates, despite a big drop in revenue.

The company reported a net income for its first quarter of fiscal 2023 of $487 million, down from a profit of $1.1 billion in the year-ago quarter. Earnings before certain costs such as stock-based compensation came to 75 cents per share, just ahead of Wall Street’s forecast of 74 cents. Revenue for the period fell 19%, to $13.8 billion, below the forecast of $14.1 billion.

HP President and Chief Executive Officer Enrique Lores (pictured) said in a statement that the company did well to hit its profit targets despite facing “industry-wide headwinds.”

HP’s biggest profit driver is its personal systems division, which includes sales of PCs and laptops. The unit delivered $9.2 billion in revenue, down 24% from the same period one year earlier and below Wall Street’s target of $9.6 billion.

Rising costs and fears of a global recession had already severely affected consumer spending on a number of markets in the U.S. and elsewhere, with computers and peripherals one of the hardest-hit industries in the retail sector. Unfortunately for HP, it’s now seeing a slowdown in orders from business customers too, Lores told Reuters in an interview.

“Companies are now becoming much more careful in how they manage budgets,” he said. “We continue to see consumer demand being impacted by macro.”

HP’s earnings beat was likely thanks to the strong performance of its printer business, which delivered $4.6 billion in revenue, down 5% from a year earlier but ahead of Wall Street’s target of $4.49 billion. The company said its operating profit margins contracted by 2.4% in the PC segment, while rising 0.8% in the printing business.

Three months earlier, HP rolled out a “Future Ready” plan that included a series of cost-cutting measures designed to help the company weather the rough economy ahead. That plan included a large round of layoffs, with 10% of the company’s workforce given their marching orders.

Lores revealed that the measures, many of which will be implemented over a two- to three-year timeframe, are already having an impact in higher profit margins. “The Future Ready plan is having an immediate impact,” he insisted.

That may explain the company’s optimistic guidance for the coming quarter. HP said it sees second-quarter earnings of between 73 and 83 cents per share, higher than the average analyst estimate of 76 cents. For the full year, HP reiterated its original forecast of $3.20 to $3.40 per share in earnings, above Wall Street’s target of $3.29 per share.

“HP has taken measures to align the ship for its lower revenue trajectory, with PC sales slumping and likely to remain stagnant for some time,” said Holger Mueller of Constellation Research Inc. “Printers are showing more resilience, down just 5%. Now the pressure is on Lores and team to execute to plan in 2023 and find a way to grow again.”

Analyst Charles King of Pund-IT Inc. told SiliconANGLE that HP’s results are a good example of how a company can take it on the chin with regards to falling sales, but still hit its profit targets via cost reductions and layoffs. However, he added that while the company did better than many had expected in the previous quarter, investors may have concerns over how long the macroeconomic conditions cited by Lores will continue, or whether they’ll get worse.

“Lores and his team’s efforts have placed HP in a sustainable position that will hopefully last until market conditions return to normal,” King said. “I would emphasize “hopefully” here because while cutting your way to profitability is an old school strategy that can be successful, it has its limits.”

For now, at least, investors appeared to be willing to give HP the benefit of the doubt, as its stock rose 2% in extended trading.

Photo: HP