10-Q: HP Inc. Q1 2026: Personal Systems Drive Revenue Amid Profit Dip

HP Inc. reported a 6.9% revenue increase in Q1 2026, primarily driven by Personal Systems, despite a decline in net earnings and gross margin.

Summary

• Net revenue for the three months ended January 31, 2026, increased by 6.9% to $14,438 million, or 5.2% on a constant currency basis, compared to the prior-year period.
• Net earnings decreased to $545 million from $565 million in the prior-year period.
• Diluted net earnings per share (EPS) decreased to $0.58 from $0.59 in the prior-year period.
• Gross profit slightly decreased to $2,835 million from $2,840 million, with gross margin declining by 1.4 percentage points to 19.6%.
• Personal Systems net revenue increased by 11.1% (9.1% constant currency) to $10,251 million, driven by a 12.1% increase in PC unit volume.
• Printing net revenue decreased by 2.2% (3.2% constant currency) to $4,187 million, primarily due to declines in Supplies, Commercial Printing, and Consumer Printing.
• Operating expenses increased to $2,076 million, including $126 million in restructuring and other charges related to the Fiscal 2026 Plan.
• Net cash provided by operating activities remained flat at $383 million.
• Returned $0.6 billion to shareholders through $0.3 billion in share repurchases (13.3 million shares) and $0.3 billion in cash dividends.
• Approximately $8.1 billion remains under the share repurchase authorization.

Sentiment

Score: 5

Explanation: StockSavvy.ai views this as a mixed report. While Personal Systems showed strong growth driven by AI PCs, the decline in net earnings, EPS, and gross margin, coupled with continued weakness in the Printing segment, indicates underlying profitability pressures. The ongoing restructuring plan and legal proceedings add a layer of uncertainty.

Positives

• Total net revenue increased by 6.9% year-over-year to $14,438 million, indicating overall business growth.
• Personal Systems segment showed strong growth, with net revenue increasing by 11.1% and PC unit volume up by 12.1%, driven by Windows-based PC operating system refresh as well as accelerated demand resulting from anticipated memory cost increases primarily in Consumer.
• Services net revenue increased due to support services on hardware devices.
• Interest and other, net expense decreased by $53 million, primarily due to lower factoring costs and foreign currency impacts.
• Net cash provided by operating activities remained stable at $383 million.
• Returned $0.6 billion to shareholders through share repurchases and cash dividends, demonstrating commitment to shareholder returns.
• The Fiscal 2026 Plan aims to drive customer satisfaction, product innovation, and productivity primarily through artificial intelligence adoption and enablement, with expected gross cost reductions by the end of fiscal year 2028.

Negatives

• Net earnings decreased to $545 million from $565 million in the prior-year period.
• Diluted net earnings per share (EPS) decreased to $0.58 from $0.59.
• Gross margin decreased by 1.4 percentage points, primarily due to higher commodity and trade-related costs as well as unfavorable mix shifts in products.
• Printing segment net revenue decreased by 2.2%, with printer units declining by 6.5% primarily due to demand softness and competitive pressures.
• Operating expenses increased, partly due to higher restructuring charges ($126 million vs. $70 million) and higher litigation charges and variable compensation.
• Cash, cash equivalents, and restricted cash decreased to $3,154 million from $3,705 million at the end of the previous fiscal year.
• Unconditional purchase obligations increased significantly from $1.1 billion as of October 31, 2025, to $2.4 billion as of January 31, 2026, primarily due to inventory purchase obligations of processors.

Risks

• Ability to execute on strategic plans, including business model changes and transformation, and achieve expected benefits of restructuring plans (Fiscal 2026 Plan).
• Development and transition of new products and services and enhancement of existing products and services to meet evolving customer needs and respond to emerging technological trends, including artificial intelligence.
• Impact of macroeconomic and geopolitical trends, changes and events, including global trade policies, ongoing military conflict in Ukraine, continued instability in the Middle East or tensions in the Taiwan Strait and South China Sea.
• Volatility in global capital markets and foreign currency, changes in benchmark interest rates, the effects of inflation and instability of financial institutions.
• Risks associated with international operations and the effects of business disruption events, including those resulting from climate change.
• Need to manage (and reliance on) third-party suppliers, including with respect to increasing memory and storage costs, supply constraints and component shortages.
• Competitive pressures faced by businesses, including competitors exerting competitive pressure in targeted areas and entering new markets, and alliance partners becoming competitors.
• Challenges to accurately forecast inventories, demand and pricing, which may be due to multi-tiered channels, sales to unauthorized resellers or uneven sales cycles.
• Disruptions in operations from system security risks, data protection breaches, or cyberattacks.
• Potential impacts, liabilities and costs from pending or potential investigations, claims and disputes, including ongoing litigation related to copyright levies, customs duties in India, patent infringement, securities class actions, and printer supplies authentication protocols.

Future Outlook

HP Inc. anticipates continued challenges in the short-term due to the macroeconomic environment, competitive landscape, and evolving business models. The company expects higher inflationary pressure in memory and storage costs and potential supply constraints in its Personal Systems business to continue. HP is on track to achieve expected gross cost reductions by the end of fiscal year 2028 through its Fiscal 2026 Plan, which focuses on AI adoption and enablement, including workforce reductions. The company continues to evaluate and implement mitigating actions such as supply chain resiliency movements and cost and pricing measures.

Management Comments

• "We are focused on services, including Device-as-a-Service, as the market shifts to subscription-based solutions, and accelerating in attractive adjacencies such as hybrid systems."
• "We are driving innovation to enable productivity and collaboration, with AI PCs and workstations playing a critical role in the transformation of how people live and work."
• "We are focused on driving further growth, recurring revenue and investment in strategic areas and believe we are well positioned to lead the future of work with our competitive product lineup and enhanced portfolio of hybrid systems, remote-computing solutions, and intelligent print solutions."
• "We continue to experience challenges that are representative of the trends and uncertainties that may affect our industry, generally, and our business and financial results, specifically, and we expect these challenges to continue in the short-term."
• "During fiscal year 2025 and through the first quarter of fiscal year 2026, we experienced higher commodity and trade related costs, which were not fully mitigated by pricing and other actions enacted during the period."
• "During the first quarter of fiscal year 2026, we experienced higher inflationary pressure in memory and storage costs and potential supply constraints in our Personal Systems business, which we anticipate will continue."
• "We are on-track to achieve our expected gross reductions in cost by the end of fiscal year 2028 [from the Fiscal 2026 Plan]."

Industry Context

StockSavvy.ai notes that HP Inc.'s strong performance in Personal Systems, particularly with AI PCs and workstations, aligns with broader industry trends emphasizing hybrid work solutions and the integration of artificial intelligence into computing devices. The decline in the Printing segment, however, reflects ongoing challenges in traditional printing markets, including competitive pressures from non-original supplies and changing customer behaviors. The increase in memory and storage costs is a sector-wide concern impacting hardware manufacturers, while the focus on subscription-based services like Device-as-a-Service and Instant Ink Services indicates a strategic pivot towards recurring revenue models, a common theme across the tech industry to enhance stability and customer stickiness.

Comparison to Industry Standards

• HP's 11.1% Personal Systems revenue growth, driven by PC unit volume, suggests a strong competitive position in the PC market, potentially outperforming some competitors facing softer demand. For example, while overall PC shipments saw a slight rebound in late 2025/early 2026, HP's specific growth figures, especially with AI PCs, indicate effective market capture. Companies like Dell Technologies and Lenovo are also heavily investing in AI PCs, making HP's unit volume increase a key indicator of its early success in this emerging sub-segment.
• The 2.2% decline in Printing revenue, coupled with a 6.5% decrease in printer unit volume, indicates continued pressure in a mature market. This contrasts with some specialized industrial printing segments that might be experiencing growth, but aligns with the broader trend of declining consumer and office print volumes. Competitors like Canon and Epson also face similar headwinds, with HP's focus on 'Instant Ink Services' and 'HP All-In Plan' being a strategic response to shift towards more stable, recurring revenue streams, similar to how other hardware companies are exploring 'as-a-service' models.
• The decrease in gross margin by 1.4 percentage points, attributed to higher commodity and trade-related costs, is a common challenge across the electronics manufacturing industry. Many hardware companies, including those in the semiconductor and component sectors, have reported increased input costs and supply chain disruptions, making HP's margin compression reflective of broader market dynamics rather than isolated operational issues.

Management Changes

Corporate Governance

Legal Proceedings

• Ongoing proceedings in certain European countries challenging the imposition or modification of copyright levies upon IT equipment (such as PCs or printers), with HP having accrued amounts believed to be adequate.
• India Directorate of Revenue Intelligence (DRI) proceedings alleging underpayment of customs duties of approximately $370 million plus penalties and interest; appeals are pending before the Customs Tribunal, with Hewlett Packard Enterprise indemnifying HP in part.
• Media Content Protection LLC Patent Litigation (formerly Philips Patent Litigation) where a district court ruled all asserted patents invalid under 35 U.S.C. § 101, subject to appeal.
• York County securities class action lawsuit, which has received final approval for a proposed settlement on February 13, 2026, with related derivative complaints stayed.
• Civil litigation and government investigations in multiple geographies concerning printer supplies authentication protocols (Dynamic Security), with some proceedings resolved or concluded, and a new class action filed in Illinois dismissed with leave to amend.
• Autonomy-related legal proceedings in the U.K. High Court of Justice, where the court found fraud by former management and ruled the Lynch estate owed approximately £740 million, with HP and Hewlett Packard Enterprise sharing equally in any recovery.
• Engaged in patent-related matters involving patents asserted to be essential to industry standards (such as Wi-Fi), with accrued amounts for those matters for which a loss is probable and reasonably estimable.

Stakeholder Impact

• Shareholders: Impacted by decreased net earnings and EPS, but also by significant share repurchases and dividends, and the potential for long-term value creation from AI-driven restructuring and Personal Systems growth.
• Employees: Affected by the Fiscal 2026 Plan, which includes expected global headcount reductions of approximately 4,000 to 6,000 employees, and changes in management roles.
• Customers: Potential benefits from product innovation, AI-powered devices, and subscription-based solutions, but also potential impact from competitive pricing and changes in printer supplies authentication.
• Suppliers: Impacted by increased unconditional purchase obligations for processors and participation in voluntary supplier finance programs.
• Creditors: Debt levels remain stable, and the company maintains a $5.0 billion revolving credit facility, indicating continued access to capital, though credit rating changes could affect borrowing costs.

Next Steps

• Continue implementation of the Fiscal 2026 Plan through fiscal 2028, focusing on AI adoption and enablement and workforce reductions (approximately 4,000 to 6,000 employees).
• Accelerate and scale AI integration into channel partner experience and supply chain operations.
• Evaluate and implement further mitigating actions for higher commodity and trade-related costs, including potential supply chain resiliency movements and cost and pricing measures.
• Monitor and address ongoing legal proceedings related to copyright levies, India customs duties, patent litigation, securities class actions, and printer supplies authentication protocols.
• Continue to pursue innovation in Personal Systems and Printing to develop new products and services aligned with market demand.
• Optimize sales coverage models, align sales incentives with strategic goals, and improve channel execution and inventory management.

Key Dates

Recommendation

HP Inc.'s latest quarterly report presents a mixed financial picture. While the Personal Systems segment shows robust growth, driven by demand for AI-enabled PCs and a Windows refresh cycle, the overall net earnings and diluted EPS have declined. The Printing segment continues to face headwinds, and gross margins are under pressure from rising commodity costs. The ongoing Fiscal 2026 Plan, with its significant workforce reductions and AI adoption focus, aims for long-term productivity but introduces near-term restructuring charges and execution risk. The substantial share repurchase program and dividend payments are positive for shareholder returns, but the underlying profitability challenges and competitive pressures warrant a cautious stance. Given the strong performance in Personal Systems offset by weakness in Printing and margin compression, a 'hold' recommendation is appropriate for investors awaiting clearer signs of sustained profitability improvement and successful execution of strategic initiatives.

Keywords

HP Inc., HPQ, Quarterly Report, Earnings, Personal Systems, Printing, AI PCs, Restructuring, Share Repurchase, Cash Flow, Revenue Growth, Profitability, Supply Chain, Intellectual Property Litigation, Corporate Governance, SEC Filing