HP Layoffs May Pave The Way For A Significant Increase In Profits

Analysts believe that if HP Inc. (HPQ) is successful in cutting costs in the midst of a continuing decline in demand for personal computers and printers, the company will be able to unlock a significant amount of its potential for future profitability.

The software giant announced late Tuesday night a new cost-cutting plan that will save the company $1.4 billion and result in the loss of 4,000 to 6,000 people by the end of the fiscal year 2025. That accounts for around 12% of HP’s total workforce.

Citi analyst Jim Suva wrote in a note to clients on Wednesday that “To put this into context, that is $0.50 of EPS help in fiscal year 2023 and over $1 of EPS exiting fiscal year 2025.” “We believe that is a big positive that investors did not expect,” Suva said. “To put that another way, that is over $1 of EPS exiting fiscal year 2025.” The current “difficult market situation,” as HP CEO Enrique Lores described it in a recent interview, is the impetus behind the company’s decision to slash costs.

The number of notebook computers sold fell by 26% during HP’s fiscal fourth quarter, which contributed to the overall reduction in sales, which was 11.2% lower than the same period a year before. In the meantime, desktop unit sales were down by 3% during the quarter, while consumer printer unit sales were down by 4% and business printer unit sales were up by 5%.

Despite the decrease in sales, the company was able to outperform all of the analyst projections.

Net Sales: $14.8 billion vs. $14.65 billion expected

Sales of Personal Systems totaled $10.3 billion, compared to a projected $10.28 billion.

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Printing Sales came in at $4.5 billion, compared to the projected $4.41 billion.

Diluted EPS: $0.85 vs. $0.84 projected

On Wednesday, HP stock increased by 1.8% as a result of a positive reaction from Wall Street to the company’s promise to decrease costs.

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