Even brand new printers aren’t immune to paper jams. The same apparently holds true for brand new Hewlett Packards.
It has been less than a month since the tech giant split itself in two, so the earnings report issued late Tuesday for the fiscal fourth quarter was still a family affair. While the results confirmed that both HP Inc. and Hewlett Packard Enterprise are still growth-challenged, troubles have mounted for the former, which sells personal computers and printers.
For the quarter ended Oct. 31, total printing revenue fell 14% year over year—more than double the decline analysts had projected. Unit sales of commercial printers slid by 23%. Revenue for printer supplies—ink cartridges and laser toner—dropped by 10% year over year.
Also concerning is how quickly the problems grew. The company noted things worsened since its Sept. 15 analyst meeting—six weeks before the quarter’s end. Weakening foreign currencies have resulted in increased price competition for HP. The company also noted a “change in usage patterns” that resulted in a decline in yields per printing unit.
Printing accounted for 40% of the new HP’s revenue in fiscal 2015, as well as 78% of its pre-tax earnings. Consumables are a key component of this model. Toni Sacconaghi of Sanford C. Bernstein estimates printer supplies account for nearly all of the company’s operating profit.
So investors who have largely favored HP Inc. since the split, are hitting the reset button. HP Inc. shares slid on Wednesday, while Hewlett Packard Enterprise rose.
A valuation of 7.7 times forward earnings isn’t particularly demanding. But the results are a stark reminder of why the stock trades at that level: HP Inc. is now a tech giant that needs to keep the ink flowing, literally.