Profit guidance's credibility, and concerns over the outlook for PC and printer demand. HP Inc. (HPQ.US) exceeded expectations in Q3 performance but saw a significant drop afterwards.

Despite HP Inc. (HPQ.US) reporting better-than-expected third-quarter earnings and fourth-quarter profit guidance, the company's stock fell over 9% in after-hours trading on Wednesday as investors questioned the reliability of its profit guidance and expressed concerns about the demand outlook for personal computers (PCs) and printers. The financial report revealed that HP Inc.'s total revenue for the third fiscal quarter of 2026 rose 13% year-on-year to $15.7 billion, surpassing the analysts' average expectation of $14.34 billion; adjusted net profit was $770 million, an 8% increase from the previous year; and adjusted earnings per share were $0.83, better than the analysts' average expectation of $0.69, which included a $0.11 per share benefit from tariff refunds. HP Inc.'s interim CEO Bruce Broussard stated, "In the third quarter, we increased overall sales and market share in high-end products while continuously attracting new customers through innovations in WXP, Printing, Workstations, and AI PCs. Our ongoing strategic response to environmental constraints has led to a significant improvement in memory supply and a higher order fulfillment rate." Fitch expects that the adjusted earnings per share for the fourth quarter ending in October will range from $0.69 to $0.79, better than the analysts' average expectation of $0.67. However, the fourth-quarter profit guidance includes a $0.08 per share benefit from tariff refunds. Excluding this factor, the median of the fourth-quarter profit guidance is actually about $0.66, below market expectations. In other words, the apparent upward revision in profits largely stems from one-off or non-operational factors rather than improvements in core business trends. At the same time, the demand outlook for HP Inc.'s PCs and printers has raised further concerns in the market. Data shows that in the third quarter, the companys PC business revenue grew 18% year-on-year to $11.8 billion (with commercial PC sales increasing 22% as a major driver), but shipments declined by 16%, indicating that revenue growth was primarily driven by price increases. The substantial rise in memory chip costs has forced HP Inc. to raise prices on some PCs and redesign products, which could further suppress end demand. The printer business performed relatively flat, with revenue declining 2% year-on-year to $3.9 billion, in line with market expectations. Compared to the PC business, the printing segment did not exhibit significant price-driven growth and was not a highlight this quarter. For HP Inc., printers and supplies have long been a crucial source of profit, but currently, this business still faces weak demand and structural pressures. Morgan Stanley analysts wrote in a report prior to HP Inc.'s earnings release that investors previously expected HP Inc. to "perform better than the worst expectations for the July quarter," but now they are increasingly worried that trends in the PC and printer markets are worsening. The analyst stated that the market is unlikely to feel reassured until HP Inc. announces its earnings outlook for next year. Looking ahead to the full fiscal year of 2026, HP Inc. anticipates adjusted earnings per share of $3.19 to $3.29, above the analysts' average estimate of $3.05. Similarly, this full-year profit guidance also includes the impact of tariff refunds. For HP Inc., while price increases can temporarily improve revenue and profits, if sales continue to decline, the market will worry that price hikes are eroding future demand. Before the next fiscal year's guidance is released, investor focus will center on three aspects: whether PC shipments can stabilize, if memory cost pressures will ease, and whether core profitability can be maintained after the cessation of tariff refunds.