HP Inc. Q2 FY25 earnings miss: Revenue rises but EPS slumps amid tariff pressures and restructuring charges

Why Did HP’s Q2 FY25 Earnings Disappoint Despite Revenue Growth?

HP Inc. (NYSE: HPQ) reported its fiscal Q2 FY25 results on May 28, with net revenue reaching $13.2 billion—up 3.3% year-over-year and 4.5% in constant currency. Yet, this topline strength failed to translate into bottom-line gains. GAAP diluted earnings per share dropped 31% to $0.42, missing the earlier guidance range of $0.62 to $0.72. Non-GAAP EPS also fell short at $0.71, down from $0.82 a year ago and below the $0.75 to $0.85 forecast.

CEO Enrique Lores attributed the mixed performance to robust commercial demand in Personal Systems, partially offset by a challenging regulatory backdrop and restructuring costs. He emphasized that cost reduction efforts and expanded manufacturing footprints are positioning the company for sustainable growth. CFO Karen Parkhill acknowledged that trade-related expenses and macroeconomic uncertainty had weighed on performance, though mitigation strategies are underway.

How Did Personal Systems and Printing Segments Perform in Q2 FY25?

Personal Systems, HP’s largest segment, posted strong performance with revenue climbing 7% year-over-year to $9.0 billion. Commercial Personal Systems revenue surged 9% amid refresh cycles driven by Windows 11 adoption and higher average selling prices. However, Consumer Personal Systems managed only a 2% increase, with unit volumes falling 2% even as commercial volumes grew 11%.

Despite the revenue boost, segment operating margin declined to 4.5% from 6.0% last year. HP cited higher commodity prices and U.S. tariff costs as margin headwinds, partially mitigated by repricing strategies and supply chain efficiencies.

Printing, a long-standing pillar of HP’s cash generation, saw a 4% decline in revenue to $4.2 billion. Consumer and Commercial Printing revenues fell 3% each, while Supplies revenue contracted 5%. Total printing hardware unit volumes increased just 1%, with Commercial units down 2% and Consumer units up 3%. However, the segment maintained a robust 19.5% operating margin—its highest in recent quarters—thanks to aggressive cost discipline and favorable pricing.

What Role Did Tariffs and Restructuring Play in HP’s Miss?

One of the clearest drags on profitability was the rising impact of trade-related costs. With tariffs of up to 30% on certain components sourced from China and Asia, HP’s cost of goods sold was materially higher. CFO Parkhill explained that while Personal Systems compute products remain largely tariff-exempt, other categories in printing and peripheral hardware are not.

To mitigate the impact, HP is rebalancing its supply chain, shifting portions of its manufacturing footprint away from high-tariff zones and optimizing logistics. In the short term, however, these changes incur significant one-time costs.

Additionally, HP absorbed $272 million in after-tax non-GAAP adjustments this quarter, including $122 million in restructuring charges, $103 million in litigation costs—mainly related to Standard Essential Patent (SEP) disputes—and $65 million in amortization expenses.

These adjustments, while excluded from non-GAAP earnings, have real implications for free cash flow and investor sentiment.

What’s the Sentiment on Wall Street and Among Institutional Investors?

Investor sentiment following HP’s Q2 release has been mixed. While revenue outperformed expectations and commercial demand remained healthy, the shortfall in earnings and weak cash flow triggered concern across trading desks. Institutional flows have shown a neutral-to-cautious tone, with several analysts maintaining “Hold” ratings amid downward revisions in FY25 EPS forecasts.

HP stock (NYSE: HPQ) traded slightly lower in after-hours following the earnings release, reflecting investor anxiety over margin compression and execution risks around supply chain repositioning.

Buy-side analysts highlighted three key concerns: the ongoing pressure from tariffs, the pace of restructuring benefits materializing, and whether pricing power in Personal Systems can hold amid competitive pressures and soft consumer demand.

How Did HP’s Cash Flow and Capital Return Strategy Fare in Q2?

Free cash flow for Q2 FY25 came in at negative $95 million—down from $500 million in Q2 FY24. Operating cash flow was a modest $38 million, impacted by lower earnings, higher inventory investment, and a decline in accounts payable days from 139 to 130. Capital expenditure rose to $183 million for the quarter.

Despite the cash flow squeeze, HP returned $0.4 billion to shareholders, comprising $273 million in dividends and $100 million in share repurchases. The quarterly dividend remained at $0.2894 per share. Gross cash at the end of the quarter stood at $2.7 billion, while net debt widened to $8.1 billion, up from $6.5 billion a year earlier.

The increased leverage, though manageable, suggests HP may need to tread carefully with future capital returns until cash flow improves.

What Does HP’s Revised FY25 Outlook Tell Us?

HP trimmed its full-year non-GAAP EPS guidance to $3.00–$3.30, down from the prior range of $3.45–$3.75. GAAP EPS is now expected to land between $2.32 and $2.62. Free cash flow projections were also revised downward to $2.6–$3.0 billion, from the earlier $3.2–$3.6 billion.

The revised guidance factors in sustained tariff exposure, muted consumer PC demand, and low single-digit declines in the global print market. However, management remains optimistic about sequential margin improvement in Personal Systems and expects print margins to remain near the top of HP’s historical range.

For Q3 FY25, HP guided GAAP EPS between $0.57 and $0.69, and non-GAAP EPS between $0.68 and $0.80. These figures imply some operating leverage recovery in the second half of FY25—assuming macro conditions stabilize.

Where Is HP Placing Strategic Bets to Drive Future Growth?

HP continues to emphasize its pivot toward higher-margin, recurring revenue streams and innovation in AI-enabled products. Its second-quarter product launches included the HP ZGX AI Station powered by NVIDIA’s Blackwell architecture and refreshed EliteBook and EliteDesk offerings designed for hybrid work environments.

Growth initiatives in workforce solutions, digital services, and subscription-based models showed positive momentum. Personal Systems Digital Services and Lifecycle Services logged quarter-over-quarter gains, particularly in sectors like financial services and healthcare.

HP also spotlighted advances in security and sustainability. The company introduced LaserJet Enterprise printers built with quantum-resilient encryption features and continued expanding its eco-label product portfolio. Recognition from Ethisphere and EcoVadis further bolstered HP’s ESG profile.

How Does Q2 FY25 Fit Into HP’s Broader Trajectory?

Historically, HP’s performance has been anchored in steady profitability from its printing segment and recurring revenue from supplies. However, the secular decline in print and increasing volatility in global trade have forced a strategic shift.

Since its post-split transformation in 2015, HP has evolved from a commodity PC player into a more diversified tech firm, with growing ambitions in hybrid work solutions and AI-enabled computing. The fiscal 2023 restructuring plan was a key milestone in that evolution, and Q2 FY25 results suggest that while the transformation is underway, friction remains.

As the company heads into the back half of FY25, the ability to stabilize margins and improve free cash flow will be crucial to maintaining investor confidence—especially given the competitive and inflationary backdrop in global tech.

What Should Investors Watch in H2 FY25?

Analysts are closely watching HP’s progress on three fronts. First, the execution of tariff mitigation strategies and their impact on cost of goods sold. Second, whether commercial demand in Personal Systems continues to offset consumer softness. And third, the ramp-up of AI-enabled PCs and their adoption curve across enterprise clients.

Investors are also tracking HP’s debt position and any indication of further deleveraging or change in dividend policy, particularly if free cash flow remains under pressure.

If the company can deliver sequential EPS improvement in Q3 and Q4 as guided—and free cash flow returns to positive territory—analyst sentiment may shift toward the bullish side. For now, most institutional holders remain in wait-and-watch mode.