Yahoo Finance Presents: HP CEO Enrique Lores

On this episode of Yahoo Finance Presents, HP CEO Enrique Lores sat down with Yahoo Finance's Brian Sozzi to talk about HP's recent earnings report and efforts to keep working during the ongoing COVID-19 pandemic.

Video Transcript

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BRIAN SOZZI: So, Enrique, always good to speak with you here. So take us to the quarter a little bit. Where are you seeing some of the biggest effects of COVID-19 on your business?

ENRIQUE LORES: So first of all, Brian, thank you for having me here today. We had a very, we have had a very strong quarter, where we beat both top and bottom line. And we had record shipments for PCs and for printers. We shipped this quarter, 19 million PCs. That, we had never done. The demand for both came from the consumer side. With people working from home, kids learning from home, it's driving demand for PCs, it's driving demand for home printing. And this is really what is behind the very strong performance we posted this quarter.

BRIAN SOZZI: I definitely want to touch upon the printer business. The result there definitely piqued my interest, and I'm sure a lot of interest out there by investors. But just on earnings, looks like a big beat for HP. This is not the first quarter this has happened in 2020. Why do you think the street, it continues to underestimate your business?

ENRIQUE LORES: Well, I think we are showing good performance across many businesses of the company. And clearly, the pandemic has reinforced the businesses that we have on the consumer side and helped us in that direction. At the same time, we continue to make progress executing all of our strategies, whether it is to advance the leadership that we have in PCs and print to create new categories, but also to transform the company and become more efficient. So when we look at the impact that all of those things are having is what is behind the success and the progress we are making as reflected in our results.

BRIAN SOZZI: One area of surprise I would say, to your earlier point, is on the printing business. The profit margins in there improved sequentially. Can you call the bottom in this business so far? I know it's been a challenging, let's say six to eight months for that business. Has it officially turned the corner?

ENRIQUE LORES: We called the bottom actually last quarter. And this quarter we have showed progress across almost every area of the business. Revenue, profit, units, supplies. So really we think we are in the upswing on the print side. And what is behind that is really the strength that we see on the consumer side. People working from home, kids learning from home are buying more printers, are printing more, are buying more supplies.

We have seen our subscription business growing. We have talked about the goal that we have of transforming the business into a service model. Our Instant Ink subscription business grew more than 30% this quarter. We have more than eight million subscribers, which is above the goal that we had. So we are really making good progress on the consumer side that we expect to continue next year.

BRIAN SOZZI: Are you still seeing shortages in the notebook computer market?

ENRIQUE LORES: In the overall PC space, we are seeing very strong demand. We have very strong demand across most of the categories. And therefore, in some cases, we are not able to fulfill because of how high this demand is. Specifically, we're seeing shortfalls in some components, like processors or panels, but is really driven by the strength of the demand we have seen this quarter, and that we expect to see the coming quarters.

BRIAN SOZZI: Enrique, we haven't talked since before the election. Now the election looks to be officially over. When you talk to customers, what's their mood right now? Are they really planning on stepping up their pace of investment over the next 12 months? Or do you still sense a good deal of cautiousness?

ENRIQUE LORES: I think we are still in an uncertain situation, not only because of the election, but mostly because of the situation with the pandemic. We just need to see what has happened with the number of cases during the last weeks where it has grown here in the US, but in many other parts of the world. So we still see this level of uncertainty staying at least until a large number of the population will get the vaccine and situation will start getting more stable.

BRIAN SOZZI: There's been a lot of focus, Enrique, on Wall Street, at least, regarding a vaccine and the optimism that would bring let's say by mid 2021 as more people get vaccinated. How do you think about it as leading HP? Once we do get that vaccine, how do you expect your business to trend?

ENRIQUE LORES: So first of all, I think we need to be very thankful to the companies that have been working against the world to create and to develop the vaccines. Because clearly, the world needs them. As people will be vaccinated, we think this will have a positive impact on the commercial side of our business, both in print and also in personal systems, which have been negatively impacted by the pandemic. What will be the exact timing and how it will transition? Again, hard to say. But positive impact because of our commercial businesses will get a benefit from that.

BRIAN SOZZI: How much leaner is your business? I know you've really focused the past year since you've taken over as CEO on bringing down expenses. How much leaner is HP, the organization in life after COVID-19?

ENRIQUE LORES: Our focus is both in driving efficiencies up, but also in maintaining innovation. And both are very important for our company. We announced our restructuring program more than a year ago, and we are executing the plan as we declared. We have made our goals this year and we will continue to make progress going forward.

But I want to also highlight the progress we are making on the innovation side. And when we look at the categories where we saw growth this quarter, whether it's consumer premium, whether it is Chromebook, whether it's subscription services, they really reflect the progress we're making as well on the innovation side of the company.

BRIAN SOZZI: What are some of your biggest innovations on tap for the coming fiscal year?

ENRIQUE LORES: So if you think, for example, about the work we have done with workstations, where we have now introduced a new concept where people will have access to the workstation power working remotely, it's a great innovation that we have introduced. We have also designed new products for people working from home. Monitors that will have, make it easier for you to be in Zoom calls or in teams calls during the majority of the day.

We're introducing innovations in accessories for people that will be playing and gaming with their PCs. And on the print side, we have introduced HP Plus, which is the new printing system that we have developed to offer a better value proposition to loyal customers that will be using HP supplies.

BRIAN SOZZI: Enrique, do you expect once we do start getting back to the office, we have a vaccine and things get back to some form of new normal, do the commercial, does the commercial printing business and also, let's say the desktop computing business, does that go back to pre COVID-19 levels? There are so many folks I talk to, their offices are going to stay closed. They may never open up again.

ENRIQUE LORES: We think that in both cases, we are going to see a recovery as people will go back to the office. But we don't think, especially in the case of commercial print, that that business will go back to the level it had before COVID started. In our company, for example, we see that many employees are going to be really wanting to have a more flexible working environment where they will be able to work from home and from the office in a flexible way.

And this will be impacting the commercial print business. For us, it's actually probably a positive trend, because we have a very strong consumer business that has been benefited through the pandemic, and that we expect to continue to be on the positive side as the recovery will happen.

BRIAN SOZZI: Just looking internally at the HP business, how are you thinking about bringing your workforce that back to work?

ENRIQUE LORES: Our number one priority continues to be the health and safety of our employees. And this will be the key driver of any decision that we will be making in the coming quarters. Today the situation is already different by country and different by function. We have working back in the office, people whose productivity was impacted by working from home.

Thinking, for example, about R&D engineers that are developing a new printer or a new PC that need to have access to hardware. These people are back to the office. And we have also people back to the office in country where the situation is under control. So the way this will be is, it will be different country by country. We will always follow the current indications, but also the internal processes that we have put in place to control our employees.

BRIAN SOZZI: There's a big number that jumps off to me, office earnings release, Enrique, $5.1 billion in gross cash. You have proven a cash flow generating machine over the past 12 months. Are you going to be more aggressive on share repurchase? I know you dialed it back mid-year a bit during the pandemic. Totally made sense. What's the outlook look like for the next 12 months?

ENRIQUE LORES: Well, let me share what we did, what we have done in the last two quarters. If I look at what we did in Q3 and Q4 combined, we bought back close to 10% of the outstanding shares of the company. I would say this is a fairly remarkable number. And we have also announced that going forward, we are going to maintain, we are going to buy at least $1 billion of shares per quarter.

And we also have announced that we are going to be increasing our dividend by 10% in 2021. So we remain fully committed to return capital to shareholders. We have done that during the last two quarters, and we will continue to do that in the coming quarters.

BRIAN SOZZI: Before I let you go, I was talking to one source on the street and he suggested that maybe HP might be in the market for some type of M&A. You do throw off a lot of cash. Is that your future, and is that something you're thinking about?

ENRIQUE LORES: Well, we remain committed to return capital to shareholders, as I explained. But we're also always looking for potential opportunities in all of our business, whether it's our core businesses our adjacencies, or growth businesses. We constantly evaluate opportunities in a very rigorous way. They need to fit our strategy.

We need to have a strong operational plan to develop and to drive the synergies that any opportunity will bring. And they have to deliver strong financial returns and have strong return on investment. And M&A is part of our strategy, but there is these strong filters that we will apply to any opportunity we will consider.

BRIAN SOZZI: All right, we'll leave it there. HP CEO Enrique Lores, always good to see you. Stay safe and we'll talk to you soon.

ENRIQUE LORES: Thank you, Brian.