HP Discusses the Printing Business (HPQ, LXK)

 |  Includes: HPQ, LXK
by: David Jackson

From last night's HP conference call:

...Imaging and Printing had a solid quarter, with revenue growth of 5% year over year, led by supplies growth of 10%. Commercial hardware growth of 4%. Consumer hardware revenue declined 8% from the prior year period. Segment operating profit was $1.04 billion, or 15.5% of revenue, reflecting gross margin expansion and expense discipline.

Over the past year, we have taken steps to strengthen the financial and competitive position of IPG, through disciplined expense management, technology innovation, and targeted acquisitions. These actions have strengthened our core printing business where units have grown 8% over the past four quarters, and allowed us to enter and compete in adjacent markets, such as photo kiosks and the photocopier market.

We continued to see solid momentum in our growth initiatives in the second quarter. Color laser unit shipments increased 38% year over year, and printer-based MFP shipments grew 44% as we continue to see demand exceed our expectations. HP Indigo press sell printed page volume growth of 42%, led by new product introductions.

In terms of our core printing business, we shipped approximately 12 million units in the second quarter. Unit growth slowed to 3% year over year, given a tough comparable, and our continued focus on targeting unit growth in the areas of high supplies consumption.

We do expect unit growth to accelerate in the second half as we drive more promotional activity. We will continue to focus on investing in growth and profitability going forward through our commitment to research and development, targeted share gains, and the building out of our commercial printing sales force. We continue to see 13% to 15% operating margin as appropriate for this business.


Bill Shope - JP Morgan Chase

Thank you. Your printing margins have broken out of your targeted range now. I think earlier in the call you said you planned to increase promotional activity to stimulate unit growth in the second half of the year. Should we assume that this means you are going to try and reinvest some of the upside versus your targeted range of 13% to 15%, to reinvigorate the install base?

Mark Hurd

We have had 8% unit growth over the past rolling four quarters. I think again our strategy is to target high usage segments for that unit growth, so you should think of us continuing to try to operate in that range of 13% to 15%.

Looking to reinvest is appropriate, again to stimulate the install base, especially in the appropriate segments. We are not trying to lead a pricing war or anything like that. We are just trying to make sure we target the right segments. I think at the same time, you have seen the benefits of that in what has shown up over the past couple quarters.

I would tell you that the IPG story is kind of a multi-prong story. I mean, the work that has been done in transformation of the business from a cost and expense perspective has been good work, done over the past several quarters. Certainly what we have done at the rest of the company has helped, and certainly our unit growth has helped over the past rolling four quarters.

We think we will continue that. We think we will see accelerating unit growth which will have some effect on margins as we go, and we think we are roughly doing what we told you we would do.

Bill Shope - JP Morgan Chase

Your promotional activity will not change from a prior action?

Mark Hurd

It will depend on the market and depend on the segment. Again, we will obviously monitor demand and monitor pricing as we go. I think you should expect us to be well-positioned, certainly in those high use segments, but I would not call anything we are going to do extraordinary, at least with our current plans.

Excerpted from the full HP conference call transcript.