HPQ · Q2 2025 Earnings
CautiousHP Inc.
Reported May 28, 2025
30-second summary
Revenue grew 3.3% YoY to $13.2B with non-GAAP EPS of $0.71, but operating margin compressed to 7.3% as April tariff hikes ran ahead of HP's mitigation actions and cost roughly 100bps and $0.12 of EPS in the quarter. Management cut the PC market outlook to low-single-digit growth (from prior expectations) and reset Q3 EPS to $0.68–$0.80, leaving a steep implied Q4 to hit the unchanged full-year $3.00–$3.30 range. The story now hinges on whether supply-chain rebalancing, $100M of incremental Future Ready savings, and pricing actions actually fully offset tariffs by Q4 as promised.
Headline numbers
EPS
Q2 FY2025
$0.71
Revenue
Q2 FY2025
$13.20B
+3.3% YoY
Gross margin
Q2 FY2025
20.7%
Free cash flow
Q2 FY2025
$-0.10B
Operating margin
Q2 FY2025
4.9%
Key financials
Q2 FY2025| Metric | Q2 FY2025 | YoY |
|---|---|---|
| Revenue | $13.20B | +3.3% |
| EPS | $0.71 | — |
| Gross margin | 20.7% | — |
| Operating margin | 4.9% | — |
| Free cash flow | $-0.10B | — |
Guidance
Prior quarter data unavailable — comparison not possible.
Product revenue
Q2 FY2025| Segment | Q2 FY2025 | YoY |
|---|---|---|
| Personal Systems | $9.024B | +7.0% |
| Commercial PS | $6.786B | +9.0% |
| Consumer PS | $2.238B | +2.0% |
| Printing | $4.181B | -4.0% |
| Supplies | $2.725B | -5.0% |
| Commercial Printing | $1.167B | -3.0% |
| Consumer Printing | $0.289B | -3.0% |
Management tone
Management's posture turned defensive in a way that's notable for HP. The release and Q&A repeatedly framed external shocks — tariffs higher than expected in April, macro uncertainty, China weakness — as the drivers of margin compression and a softer market outlook, with operational mitigation cast as a multi-month process rather than an in-quarter fix.
Three months ago, tariffs were a known cost being managed inside the guide. This quarter, management acknowledged that "the tariff increases announced in April were higher than expected" and that "the full benefit of these mitigating actions can take a few months lead time." The shift from "planned and manageable" to "we will respond swiftly if it changes again" is a concession that visibility is limited and that the company is reacting rather than anticipating. The implicit message: don't assume Q4 mitigation is locked in.
The PC market framing also walked back. HP had been guiding to PC market growth in 2025 at original projections; this quarter it became "low single digits for both the second half and full calendar year… softer than originally planned, driven by increased macro uncertainty." That is a downgrade of HP's own top-line setup for the rest of the year, and it's the primary reason the H2 EPS profile is back-half-loaded into Q4.
Offsetting the defensive tone is one genuinely positive shift: structural savings. Management moved from targeting $2B to "expecting to exceed" $2B in gross annual run-rate savings by end of FY25, with $100M of incremental Future Ready savings called out. This is the lever that has to carry Q4 if demand stays soft.
Capital return also moderated quietly. Buybacks were limited to offsetting stock-comp dilution because a planned debt refinancing pushed leverage "slightly above our target range." That's a meaningful pullback for a company that has historically returned aggressively, and it tells you something about how management is sizing near-term cash priorities against tariff uncertainty.
Recurring themes management leaned on this quarter:
Risks management surfaced:
Q&A highlights
Eric Woodry · Morgan Stanley
Context on PC market expectations for H2, including drivers of weakness (enterprises, SMB, international), channel inventory status, and whether Windows 11 refresh is a meaningful catalyst given low single-digit growth guidance.
Management cited more prudent estimates due to changed economic conditions and announced industry price increases. Stated channel inventory is healthy, impact will hit both consumer and commercial, but WIN-11 remains a catalyst. Plan is to grow share; if market is larger than expected, results will reflect it.
Wamsi Mohat · Bank of America
Detailed breakdown of tariff mitigation actions, including pricing strategy, supply chain moves, and cost actions. Also asked about confidence in supply chain moves given potential for reciprocal tariffs.
Management detailed acceleration of factory shifts out of China (now nearly zero products from China shipped to US by June), logistics network changes, cost actions, and targeted pricing across portfolio. Noted they will not quantify price vs. supply chain vs. cost split. Additional $100M in Future Ready savings announced. By Q4, expect full mitigation of current tariff costs. Acknowledged fluid environment but stated they will respond swiftly to future changes.
Michael Ink · Goldman Sachs
PS margin expectations for full year (specifically 5-7% range) and key swing factors. Also asked about demand pull-in ahead of potential tariffs.
Management confirmed PS margins will be in 5-7% range for full year, likely lower half due to Q2 impact but with good sequential improvement. Regarding demand pull-in, stated it was fairly small at company level (less than 1% of growth), though more material in North America as a percentage. No pulling observed for print.
Sameek Chatterjee · JPMorgan
Print margin drivers (business vs. cost actions), one-off impacts in Q2 vs. Q3 moderated margins. Also clarification on PS margin progression Q3 to Q4 and whether improvement is supply chain full-quarter benefit or incremental pricing.
Print margin outperformance driven by cost discipline and pricing actions, plus $X million multi-year grant from Singapore Economic Development Board (retroactive to calendar year start, so Q2 booking higher than quarterly run rate). Q3 print margins expected solidly in 16-19% range. Q4 improvement from hardware placements, higher supplies mix, and full benefit of trade actions. PS margins lower half of 5-7% in Q3 with strong Q4 improvement from supply chain traction, pricing, and cost savings.
Amit Daryanani · Evercore
Breakdown of 45-cent EPS impact: how much is direct tariff cost vs. demand moderation. Also asked for understanding of Q4 earnings step-up (to ~$1.00 from ~$0.70 run rate) in terms of revenue-driven vs. cost-driven.
100 basis points margin impact and 12 cents EPS in Q2 was direct tariff-related unfavorable. H2 guidance reduction mainly driven by prudent moderation of growth expectations due to macroeconomic conditions, though indirectly related to trade environment via demand (not direct cost). Q4 earnings ramp expected from both demand strengthening (back-to-school, holiday, continued WIN-11/AI refresh) and cost/margin actions (pricing, supply chain redesign, Future Ready savings).
What to watch into next quarter
Whether PS operating margin actually recovers into the lower half of 5–7% in Q3 (vs Q2's 4.5%). A print below 5% would signal tariff mitigation is slipping past schedule and the Q4 ramp is unrealistic.
Print margin normalization — Q3 print margin should land "solidly" inside 16–19%, meaningfully below Q2's grant-aided 19.5%. Watch the magnitude of the step-down to gauge underlying print profitability ex-one-off.
Q4 EPS exit run-rate — to hit $3.15 FY midpoint, Q4 needs ~$0.96 non-GAAP EPS, roughly 30% sequentially above Q3 guide. Any Q3 print at the low end of $0.68–$0.80 makes the full-year guide arithmetically very tight.
Tariff offset progress disclosure — management committed to full mitigation by Q4. Watch for explicit confirmation in Q3 that supply-chain shifts (now near-zero China-to-US shipments) and pricing have neutralized the run-rate, or for any new tariff-driven hedging language.
Free cash flow trajectory — Q2 FCF was -$95M; HP must generate the bulk of the $2.6–$3.0B FY range in H2. Working-capital drag from supply chain diversification is a real risk to the low end.
Capital return cadence — buybacks were limited to dilution offset this quarter due to leverage above target. Watch whether HP returns to opportunistic repurchase in Q3 or if balance-sheet caution persists.
Sources
- HP Inc. Q2 FY2025 press release (Form 8-K Exhibit 99.1, filed with SEC): https://www.sec.gov/Archives/edgar/data/47217/000004721725000041/hp043025exhibit991q225.htm
- HP Inc. Q2 FY2025 earnings call Q&A (analyst exchanges as cited).
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