HP's Ink Starts Flowing Again -- Heard on the Street

The razorblades in HP Inc.'s business model are starting to sharpen up again.

Printing supplies make up about one-quarter of HP's revenue, but they are estimated to account for a majority of the company's operating profit. It was a surprising bit of good news, then, that HP's printing supply revenue grew by 2% year over year in its fiscal second quarter reported Wednesday. That was the first such growth the segment has seen in four years. HP's share price jumped 4% after-hours Wednesday following the results.

It helps that printing hardware sales picked up as well, with commercial and consumer hardware sales rising by 3% and 4% year over year, respectively. Adding in a strong gain in laptop computer sales pushed HP's total revenue for the quarter up by 7% year over year -- its best reported growth since splitting from its enterprise cousin in late 2015. Wall Street was expecting a gain of less than 3%.

The results were an encouraging development following last year's rough ride, during which HP's printer supply business weakened considerably due to rising inventories and a confusing pricing plan. Likewise, the company is now benefiting from a slightly improving market for personal computers. PC sales edged up by nearly 1% year over year in the March quarter, according to IDC. That is the first such gain observed in five years. And HP picked up market share during the quarter, overtaking market leader Lenovo for the first time in at least three years, per IDC's estimates.

Still, PCs and printers aren't the businesses they once were. HP therefore will have to keep playing its chips wisely, focusing on promising niches such as high-end PCs and business printing while also maximizing free cash flow. It also bears noting that HP's shares now fetch 11.4 times forward earnings compared with 7.2 times a year ago. While that isn't a terribly demanding valuation in tech, HP can ill afford more paper jams.

Write to Dan Gallagher at dan.gallagher@wsj.com

(END) Dow Jones Newswires

May 24, 2017 19:21 ET (23:21 GMT)