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Nov 26, 2019

HP projects strong profit after spurning Xerox takeover attempt

Signage is displayed outside HP Inc. headquarters in Palo Alto, California, U.S., on Thursday, Nov. 7, 2019. HP's board is still deliberating over a $33 billion takeover proposal from Xerox Holdings Corp., people familiar with the matter said, adding uncertainty to a potential blockbuster deal that would reshape the printing industry.

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HP Inc. gave a profit forecast that topped Wall Street estimates, projecting optimism that a broad restructuring will pay off while spurning a takeover offer from Xerox Holdings Corp.

Profit, excluding some items, will be US$2.24 a share to US$2.32 a share in fiscal 2020, the Palo Alto, California-based company said Tuesday in a statement. Analysts, on average, estimated US$2.24, according to data compiled by Bloomberg. In the fiscal fourth quarter, the hardware maker’s sales and adjusted profit topped analysts’ projections.

HP’s earnings report comes in the midst of an increasingly contentious debate with Xerox about a blockbuster combination that would reshape the printing industry. Xerox said Tuesday it plans to go directly to HP’s shareholders, adding that HP’s refusal to engage on the US$22-a-share offer “defies logic.”

On Sunday, HP reiterated its stance that it has many options to create value for shareholders, other than accepting the offer valued at more than US$33 billion in cash and stock, and wasn’t “dependent on a Xerox combination.”

“The results show that our strategy is working and we’re driving both short- and long-term value creation,” Chief Executive Officer Enrique Lores said in a press briefing.

Fiscal fourth-quarter revenue came in at US$15.4 billion, little changed from a year ago, and ahead of analysts’ average estimate of US$15.3 billion.

Xerox has made a move for HP to consolidate the printing business at a time when both companies are stumbling. HP’s printing division, a major source of profit, has seen falling sales because of weaker demand for ink supplies. HP has announced a major restructuring to stabilize the company, which could result in as much as a 16 per cent reduction of its workforce by the end of fiscal 2022.

In the period ended Oct. 31, sales in the printing division fell 6 per cent to US$4.98 billion, with ink supplies dropping 7 per cent. Consumer revenue declined 10 per cent and commercial sales decreased 2 per cent.

“We continue to lead in a tough market,” Lores said of the printing industry. “We continue to grow in the categories that we consider important,” such as managed print services and instant-ink delivery services.

Revenue from personal computers increased 4 per cent to US$10.4 billion, with 8 per cent growth in commercial revenue offsetting a 4 per cent decline in consumer sales. Corporate clients are upgrading their computers to adopt Microsoft Corp.’s Windows 10 operating system.