10-Q: HP Inc. Q3 Earnings Rise on Tax Benefit, Personal Systems Growth

HP Inc. reported a 3.1% increase in net revenue for the third quarter of fiscal year 2025, driven by Personal Systems growth and a significant tax benefit, despite declines in its Printing segment.

Summary

• Net revenue for the three months ended July 31, 2025, increased by 3.1% to $13.93 billion, or 3.3% on a constant currency basis, compared to the prior-year period.
• Net earnings for the quarter rose by 19.2% to $763 million, with diluted EPS increasing by 23.1% to $0.80, primarily due to a substantial income tax benefit.
• For the nine months ended July 31, 2025, total net revenue increased by 2.9% to $40.66 billion, or 3.7% on a constant currency basis.
• Nine-month net earnings decreased by 7.3% to $1.73 billion, and diluted EPS decreased by 3.2% to $1.82.
• Personal Systems net revenue grew by 6.0% for the quarter, driven by a 4.9% increase in PC unit volume and a 2.5% increase in average selling prices (ASPs).
• Printing net revenue decreased by 3.8% for the quarter, with Supplies revenue down 3.7% and printer units decreasing by 9.5%.
• Gross margin for the quarter decreased by 1.0 percentage points to 20.5%, primarily due to higher tariff costs, mix shifts towards Personal Systems, and unfavorable currency impacts.
• Operating expenses increased by 8.6% for the quarter, largely due to higher restructuring charges and amortization of intangible assets.
• Net cash provided by operating activities for the nine months decreased by $0.1 billion to $2.07 billion.
• HP returned $1.2 billion to shareholders during the nine months through $0.8 billion in cash dividends and $0.4 billion in share repurchases.
• Approximately $8.9 billion remains under the share repurchase authorization as of July 31, 2025.

Sentiment

Score: 5

Explanation: The sentiment is neutral. While net revenue growth and a significant tax benefit led to higher quarterly net earnings, underlying operational performance (gross margin, operating earnings) declined. The Printing segment continues to struggle, and the company faces ongoing macroeconomic headwinds, tariff impacts, and an unremediated material weakness in internal controls. Personal Systems growth is a positive, but overall results are mixed, preventing a strongly positive or negative rating.

Positives

• Net revenue increased by 3.1% for the quarter and 2.9% for the nine months, indicating overall top-line growth.
• Personal Systems segment showed strong performance, with net revenue increasing by 6.0% for the quarter, driven by higher PC unit volume and ASPs.
• Quarterly net earnings and diluted EPS saw significant increases of 19.2% and 23.1% respectively, boosted by a $281 million net income tax benefit from discrete items.
• The company is on track with its Fiscal 2023 Plan for digital transformation, portfolio optimization, and operational efficiency, expecting overall program savings.
• Interest and other, net expense decreased by $21 million for the quarter, partly due to a gain from a single litigation matter unrelated to ongoing business operations.

Negatives

• Gross margin decreased by 1.0 percentage points for the quarter and 1.6 percentage points for the nine months, impacted by higher tariff costs, mix shifts, and unfavorable currency.
• Printing segment net revenue declined by 3.8% for the quarter and 3.5% for the nine months, with decreases across Supplies, Commercial Printing, and Consumer Printing.
• Earnings from operations decreased by 23.8% for the quarter, reflecting increased operating expenses and lower gross profit.
• Nine-month net earnings and diluted EPS decreased by 7.3% and 3.2% respectively, indicating a weaker performance over the longer period.
• Restructuring and other charges increased significantly by $64 million for the quarter and $122 million for the nine months due to an amendment to the Fiscal 2023 Plan.
• Amortization of intangible assets increased due to impairment charges of $65 million in the Print segment and $27 million in Corporate Investments.
• Net cash provided by operating activities decreased by $0.1 billion for the nine months, primarily due to working capital impacts and lower net earnings.
• Net cash used in investing activities increased by $0.6 billion for the nine months, driven by higher investments in property, plant, equipment, purchased intangibles, and collateral for derivative instruments.

Risks

• Ongoing macroeconomic and geopolitical challenges, including conflicts in Ukraine, the Middle East, and the Taiwan Strait, can impact business and financial performance.
• New, substantial tariffs imposed on U.S. imports since April 2025 have led to higher commodity and tariff costs, which were not fully mitigated by pricing and other actions.
• The competitive landscape is intensifying, with primary competitors exerting pressure, emerging competitors introducing new technologies, and alliance partners becoming competitors.
• Challenges exist in Personal Systems due to a competitive pricing environment, variability in commodity costs, and demand softness in certain geographic regions.
• The Printing segment faces challenges from changing customer behaviors, competitors benefiting from favorable foreign currency, non-original supplies, and reliance on single-source suppliers for many components.
• A material weakness in internal control over financial reporting was identified and remains unremediated as of July 31, 2025, stemming from undue reliance on certain software solutions without effective IT general controls.
• The company is involved in various legal proceedings, including copyright levies, customs duty disputes in India, patent infringement claims, and a securities class action, which could result in significant liabilities or operational disruptions.
• Fluctuations in foreign currency exchange rates negatively impact financial results, as approximately 65% of net revenue is from outside the United States.

Future Outlook

HP anticipates continued challenges in the short-term due to the macroeconomic environment, including geopolitical conflicts, market uncertainty, currency volatility, and inflationary trends. The company expects to continue investing savings from its 'Future Ready Plan' into growth areas like AI PCs, advanced compute solutions, hybrid systems, consumer subscriptions, industrial graphics, and 3D printing. HP is evaluating and implementing mitigating actions for new tariffs, including supply chain resiliency and cost/pricing measures. The company does not anticipate a material impact on its effective tax and cash tax rates from the recently enacted One Big Beautiful Bill Act or the BEPS Pillar Two global minimum tax framework for fiscal year 2025.

Management Comments

• Management is focused on profitable growth through innovation, market segmentation, and portfolio simplification in Personal Systems.
• Management is investing in endpoint services and solutions, particularly Device-as-a-Service, as the market shifts to subscription-based models.
• Management aims to drive innovation to enable productivity and collaboration, with AI PCs and workstations playing a critical role.
• Management is focused on offering innovative, intelligent printing experiences and subscription-based solutions for consumer, SMB, and large enterprise customers.
• Management is driving the shift from analog to digital in industrial graphics segments and expanding its footprint in 3D printing.
• Management believes the company is well-positioned to lead the future of work with its competitive product lineup and enhanced portfolio of hybrid systems, remote-computing solutions, and intelligent print solutions.
• Management is consolidating all software resources under the Technology and Innovation Organization to evolve from a transactional hardware company to a more experience-led organization.
• Management acknowledges facing challenges with a competitive pricing environment, variability in commodity costs, and demand softness in Personal Systems.
• Management notes challenges in Printing from changing customer behaviors, competitors with favorable foreign currency, and non-original supplies.
• Management states that the company is on track to achieve its overall program savings from the Fiscal 2023 Plan and its overall headcount reduction goal.

Industry Context

HP's performance reflects broader industry trends, including the growing demand for AI-enabled PCs and hybrid work solutions, which the company is actively addressing through innovation and portfolio adjustments. The decline in the Printing segment aligns with a general shift in customer behavior and increased competition from non-original supplies. The company's focus on subscription-based services (e.g., Device-as-a-Service, Instant Ink) is a strategic response to evolving market preferences for recurring revenue models. Macroeconomic headwinds, such as geopolitical conflicts, inflation, and new tariffs, are impacting the technology sector globally, affecting demand and increasing costs for many players, not just HP.

Corporate Governance

Legal Proceedings

• Ongoing proceedings in certain European countries challenging the imposition or modification of copyright levies on IT equipment, with HP having accrued amounts believed to be adequate.
• India Directorate of Revenue Intelligence Proceedings seeking approximately $370 million plus penalties and interest for alleged underpayment of customs duties; matter pending a decision after hearings between late April and June 18, 2025.
• Media Content Protection LLC Patent Litigation (formerly Philips) for patent infringement related to digital video-capable devices; HP's motion for summary judgment denied, litigation ongoing.
• York County on behalf of the County of York Retirement Fund v. HP Inc., et al. (Securities Class Action) alleging violations of the Exchange Act; a binding term sheet for a proposed settlement was executed on July 28, 2025, with a motion for preliminary approval filed on August 19, 2025.
• Legal Proceedings re Authentication of Supplies (Dynamic Security) involving civil litigation and government investigations in multiple geographies; HP substantially prevailed in a Netherlands appeal, but a cassation appeal was filed, and a new class action was filed in Illinois in January 2024.
• Autonomy-Related Legal Proceedings where the court ruled on July 22, 2025, that the Lynch estate owed approximately 740 million pounds in damages, with HP and Hewlett Packard Enterprise sharing equally in any recovery.
• Litigation with Wilus Institute of Standards and Technology, Inc. and Sisvel International S.A. involving three patent infringement lawsuits against HP in Texas related to Wi-Fi 6 standards, with HP filing counterclaims for FRAND violations.
• Additional lawsuits filed by Koniklijke Philips N.V. and Huawei Technologies Co. Ltd against HP in Germany asserting Wi-Fi 6 standard-essential patents, seeking injunctions, damages, and product recalls, with hearings scheduled in 2026.

Related Party Transactions

• HP shares responsibility and cross-indemnifies Hewlett Packard Enterprise for certain matters pursuant to the separation and distribution agreement, including litigation matters and tax liabilities.

Stakeholder Impact

• Shareholders: Impacted by mixed financial results, ongoing share repurchase program, and dividend payments. The proposed settlement in the securities class action could reduce litigation overhang.
• Employees: Affected by the Fiscal 2023 Plan's workforce reductions, which were increased by 1,000-2,000 employees, leading to potential job losses.
• Customers: Benefit from continued innovation in AI PCs and hybrid systems, but may face challenges with competitive pricing and potential impacts from Dynamic Security litigation.
• Suppliers: Participation in voluntary supplier finance programs provides liquidity, but the company's reliance on single-source suppliers for some Printing components poses a risk.
• Creditors: Debt levels are managed, and the recent issuance of senior unsecured notes indicates continued access to capital markets, with credit ratings influencing borrowing costs.

Next Steps

• Continue implementation of the Fiscal 2023 Plan through the end of fiscal year 2025, focusing on digital transformation, portfolio optimization, and operational efficiency.
• Monitor and mitigate the impact of new tariffs imposed on imports to the United States, including potential supply chain resiliency movements and cost and pricing measures.
• Address the unremediated material weakness in internal control over financial reporting by designing and implementing appropriate IT general controls.
• Await a decision from the Customs Tribunal regarding the India Directorate of Revenue Intelligence Proceedings.
• Proceed with the proposed settlement in the York County securities class action, pending preliminary approval from the district court.
• Continue defense against patent infringement lawsuits related to Wi-Fi 6 standards filed by Wilus, Philips, and Huawei.
• Attend the hearing scheduled for the week of November 17, 2025, to address additional matters in the Autonomy-related legal proceedings, including attorneys' fees, pre-judgment interest, and exchange rate conversion.
• Evaluate the impact of recently issued FASB guidance on expense category disaggregation and income tax disclosures for future fiscal years.

Key Dates

Recommendation

The filing presents a mixed financial picture. While Personal Systems showed solid growth and the quarterly net earnings were significantly boosted by a tax benefit, the Printing segment continues its decline, and overall operational profitability (gross margin, operating earnings) faced headwinds. The company is actively managing its portfolio and costs through the 'Future Ready Plan' and is returning capital to shareholders. However, ongoing macroeconomic uncertainties, tariff impacts, and the unremediated material weakness in internal controls introduce caution. The proposed settlement of the securities class action is a positive, but other significant legal proceedings remain. Given the balance of positive strategic execution in some areas against persistent challenges and operational pressures, a 'hold' recommendation is appropriate for a seasoned investor, suggesting a wait-and-see approach for clearer signs of sustained operational improvement across all segments.

Keywords

HP Inc., HPQ, 10-Q, Quarterly Report, Earnings, Personal Systems, Printing, AI PCs, Restructuring, Tariffs, Supply Chain, Cash Flow, Share Repurchase, Corporate Governance, Litigation, Macroeconomic, Technology, Hardware, Software, Services