HP Inc. (NYSE:HPQ) Q1 2023 Earnings Call Transcript

Marie Myers: And just to reiterate, Toni, they’re in both cost of sales and OpEx. Just so

Toni Sacconaghi: Thank you for that. And if I could follow-up just on cash flow. So if I think just really high level, midpoint of your guidance sort of points to about $3.3 billion in net income. You have $400 million in restructuring costs that would take you down to $2.9 million, adjusting just for that. And then you have a negative mix shift in terms of PCs growing slower than the overall company in all likelihood per your guidance. So that would also hurt free cash flow. So if I just look at those three structural things, you’re actually looking below $3 billion. So are you €“ what’s the bridge to get to above $3 billion? Are you counting on meaningful working capital improvements? Because you did condition that you still might do strategic guides or there may be other reasons why perhaps you may not be able to bring down inventory.

So perhaps starting with my bridge, you can tell me what’s missing and how we can get comfortable with $3 billion to $3.5 billion? Thank you.

Marie Myers: Sure, Toni. So I think just to reiterate what I did say earlier that both the Q1 numbers and the earnings guide that we gave last quarter, we’re absolutely committed to those yet again. I think that’s just another point to note. But to build off your bridge, so one additional point that you pointed out just around working capital. So we did actually reduce our owned inventory in the quarter from €“ by about $300 million. We do intend to continue to have reductions of owned inventory throughout the year. So obviously, we’ll be managing those, pending any economic opportunities for strategic buys, as I said earlier. The other important point to think about is the €“ we talked about €“ a bit about this during the call, it’s just that second half improvement that we’re expecting in Personal Systems revenue.

As you know, PS contributes cash when it grows sequentially, and that’s because it has that negative cash conversion cycle. So there are just two incremental points to help you sort of model out the cash flow for the year.

Enrique Lores: And then just one clarification. The improvement in inventory that Marie mentioned is net of the strategic buys that we already did this quarter. So we already did some in Q1.

Marie Myers: Yes. Correct. Thank you.

Operator: We’ll take our next question from Sidney Ho with Deutsche Bank.

Sidney Ho: Thanks for taking my question. My first question is on the print side. It does look like the supplies is a little better than you expected and you also slightly uptick the guidance for Q2. Just curious what the dynamics that you’re seeing there? And do you think the overall business for Print has reached a bottom in Q1, considering supplies are starting to improve and commercial constraints are starting to ease as well. And then I have a follow-up?