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Canon & Xerox Q4 Results Suggest Demand For Printing Remains Soft.
HP Outlook Tempered by Canon, Xerox Data
By Maynard Um, Munjal Shah, Jason Ng.
Canon ’s and Xerox ’s fourth-quarter results suggest demand for printing products remains soft with some stabilization in supplies business and strength in the U.S.
Based on Canon’s (ticker: CAJ) and Xerox’s (XRX) results, we remain comfortable with our estimates for HP ’s (HPQ) printing business for the fiscal first quarter (a 6.4% year-over-year decline in hardware and a 5% decline in supplies). We maintain our Market Perform rating on HP. Our valuation range of $15-$16.50 is based on roughly 10 times estimated fiscal 2017 earnings per share of $1.61. We believe HP has the right strategy to draw down supplies and increase product placement, but remains in transition at least until first-half 2017.
Canon noted its laser printer unit sales improved in the fourth quarter driven by color models after declining year-over-year for the first three quarters of 2016. Canon also noted improvement in supplies sales, which exceeded internal expectations for the fourth quarter. Overall, laser printer sales declined 10.5% year-over-year (down 7.8% in constant currency (CC)), an improvement from 14.6% year-over-year decline in CC in the third quarter). Canon noted the inkjet market continued to decline with its sales down 11.1% year-over-year (4% in CC). For 2017, Canon expects the laser printer business to see some recovery with unit shipments roughly flat year-over-year driven by global economic growth (improvements in U.S., modest growth in Europe and Japan, and continued slowdown in China). Canon expects consumables sales to be roughly flat year-over-year.
Xerox’s equipment sales were down 12% year-over-year (10% in CC) and were impacted by weakness in high-end and timing of new product launches (pause ahead of 29 new products expected to be released in first-half 2017) while declines in annuity revenue (down 5% year-over-year, 3% at CC) were stable and consistent with prior quarters. For 2017, Xerox expects sales to decline mid-single digits in CC and two-point headwind from exchange rates with new product launches to help in second-half 2017.
http://www.barrons.com/articles/hp-outlook-tempered-by-canon-xerox-data-1485965932
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