HP Inc. HPQ reported third-quarter fiscal 2026 adjusted earnings of 83 cents per share, which increased 10.7% year over year and beat the Zacks Consensus Estimate by 10.7%.
HPQ reported revenues of $15.68 billion, which increased 12.5% and surpassed the consensus mark by 5.6%. Growth was led by Personal Systems as pricing and a richer premium mix offset lower unit volumes.
HPQ’s total PC units fell 16% year over year, while AI PCs accounted for 46% of shipment mix, highlighting the shift toward higher-value configurations.
HPQ's Personal Systems Revenues Hit a Q3 Record
Personal Systems revenues were $11.77 billion, up 18.5% year over year and 16.7% in constant currency. Commercial PS revenues rose 22%, while Consumer PS revenues increased 10%, reflecting continued strength across both customer groups.
Commercial PC units declined 14%, and consumer units fell 19%. Even so, HP gained 2.6 points of share in premium categories and 1.8 points in workstations sequentially. Attached businesses, including peripherals, collaboration solutions and services, contributed about one-third of Personal Systems gross profit.
HP Inc. Price, Consensus and EPS Surprise
HP Inc. price-consensus-eps-surprise-chart | HP Inc. Quote
HPQ Printing Revenues Slip on Lower Volumes
Printing revenues were $3.91 billion, down 2.2% year over year and 3.6% in constant currency. Supplies revenues declined 3%, Commercial Printing fell 1%, and Consumer Printing decreased 2% as hardware and supplies volumes remained under pressure.
The company continued to shift toward higher-value print categories. Tank printer units jumped 42%, while Industrial Printing posted its 12th consecutive quarter of revenue growth. 3D Printing revenues also grew at a double-digit rate for the sixth straight quarter.
HPQ Margins Face Rising Commodity Costs
HPQ's gross margin was 18.8%, pressured by higher commodity costs and a greater mix of Personal Systems revenues. Non-GAAP operating margin contracted 60 basis points year over year to 6.5%, even as pricing, growth in key areas and tariff refunds provided partial offsets.
Personal Systems operating margin fell 80 basis points to 4.6%, while Printing margin improved 110 basis points to 18.1%. The quarter's adjusted earnings included an 11-cent benefit from tariff refunds. Management said the benefit from lower-cost inventory is largely behind the company as higher-cost inventory moves through results.
HPQ’s Cash Flow Supports Capital Returns
HPQ generated $1.74 billion of operating cash flow and $1.57 billion of free cash flow in the quarter. The company ended July with $4.17 billion in cash, cash equivalents and restricted cash, while the cash conversion cycle stood at negative 37 days.
During the quarter, HPQ repurchased $300 million of stock and paid $274 million in dividends. It also paid down slightly more than $500 million of debt maturities, ending the quarter with $9.20 billion of gross debt.
HPQ Expands Its Edge AI Opportunity
HPQ expects AI PCs to account for 50% of shipment mix by the end of fiscal 2026, rising to 60-70% in fiscal 2027 and more than 70% in fiscal 2028. The company is also working with more than 150 software partners to expand workloads that can run locally on PCs.
Beyond PCs, HPQ signed a three-year, $100 million strategic agreement with RRD to accelerate AI and industrial automation in print production. Management also highlighted continued expansion of WXP, which brings PC, printer and collaboration-device management into a single platform.
HPQ Raises Fiscal 2026 Earnings and Cash Flow Outlook
HPQ raised its fiscal 2026 non-GAAP earnings outlook to $3.19-$3.29 per share from $2.90-$3.10. The new range includes a 19-cent favorable impact from estimated tariff refunds. Free cash flow guidance was also increased to $3-$3.20 billion.
For the fourth quarter of fiscal 2026, HPQ expects non-GAAP earnings of 69-79 cents per share, including an 8-cent tariff-refund benefit. Personal Systems revenues are expected to be below seasonal levels but still grow year over year, while Printing revenues are projected to follow historical seasonality.
HPQ’s Zacks Rank & Stocks to Consider
HPQ currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader Zacks Computer and Technology sector include Dell Technologies DELL, Docusign DOCU and Hewlett Packard Enterprise HPE. While Dell Technologies sports a Zacks Rank #1 (Strong Buy), Docusign and Hewlett Packard Enterprise carry a Zacks Rank of 2 (Buy) each at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
DELL shares have skyrocketed 268.4% in the year-to-date period. Dell Technologies is set to report second-quarter fiscal 2027 results on Sept. 1.
Shares of DOCU have plunged 13.3% year to date. Docusign is set to report the second-quarter fiscal 2027 results on Sept. 3.
Shares of HPE have rallied 129.9% year to date. Hewlett Packard Enterprise is slated to report third-quarter fiscal 2026 results on Sept. 2.
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This article originally published on Zacks Investment Research (zacks.com).