HP published its third-quarter fiscal 2026 report. Revenue surprised to the upside, earnings per share beat expectations by a wide margin, and the company raised full-year guidance.
And still, two numbers in the report pull in an entirely different direction.
Errors or inaccuracies are possible. Spotted something that looks wrong? Write to me and I will correct it.
What This Company Does
HP Inc is what remains of the consumer half of Hewlett-Packard after the 2015 split - when the enterprise part, servers and services, became the separate HPE.
What remains divides in two, and they are entirely different from each other:
| What it is | The economic logic | |
|---|---|---|
| Personal Systems | Laptops, desktops, workstations | High volume, thin margin |
| Printing | Printers, and above all ink and toner | Low volume, fat margin |
And the logic of printing is the razor-and-blades model, and it explains the whole profit structure of the company.
The printer itself is sold cheaply, sometimes near cost. The profit comes from the consumables - ink and toner - sold repeatedly across the life of the device.
Which is why the "supplies" line matters more than "hardware units" in reading that segment, and why a fall in printer sales today is a fall in profit two years from now.
The Quarter
| The quarter | A year earlier | Change | |
|---|---|---|---|
| Revenue | $15.7 billion | 13.9 | +12.5% |
| GAAP operating margin | 5.7% | 5.1% | +0.6 pts |
| Non-GAAP operating margin | 6.5% | 7.1% | -0.6 pts |
| GAAP net earnings | $0.66 billion | 0.76 | -13% |
| GAAP earnings per share | $0.71 | 0.80 | -11% |
| Non-GAAP earnings per share | $0.83 | 0.75 | +11% |
| Operating cash flow | $1.74 billion | 1.66 | +4% |
| Free cash flow | $1.57 billion | 1.47 | +7% |
Expectations stood at about $14.6 billion of revenue and $0.66 per share. Both were passed.
And the Number That Makes This Report Interesting
It is the segment split, and here one has to stop:
| Revenue | Change | Units sold | Operating margin | |
|---|---|---|---|---|
| Personal Systems | $11.8 billion | +18% | -16% | 4.6% |
| of which consumer | +10% | -19% | ||
| of which commercial | +22% | -14% | ||
| Printing | $3.9 billion | -2% | -7% | 18.1% |
PC revenue rose 18%. The number of PCs sold fell 16%.
The arithmetic is simple: if turnover grew by a factor of 1.18 and quantity shrank by a factor of 0.84, the average price per unit rose about 40%.
And that is not an ordinary price increase. That is a jump.
And it has two possible explanations, entirely different from an investor's point of view:
The first - mix. HP is selling more AI PCs and premium machines and fewer cheap devices. That is a qualitative improvement: the same customer buys a more expensive product, and the margin should rise with it.
And the second - cost. Memory prices rose, and manufacturers are passing them on. That is not an improvement but a pass-through - the price rises because the cost rises, and the margin stays put or erodes.
And the report contains a hint pointing the second way: management notes that "our ongoing strategy to address environmental constraints led to meaningful improvements in memory supply and higher fulfillment rates".
And above all - the segment's operating margin stands at just 4.6%, and the company's non-GAAP margin fell from 7.1% to 6.5%.
That is: revenue rose 12.5%, and the margin fell. Whoever raises prices to cover a cost is not earning more - only growing.
And the Profit That Beat Expectations - Where Part of It Came From
Non-GAAP earnings per share came in at $0.83 against $0.66 expected. But the release states explicitly that it includes a favourable contribution of $0.11 from tariff refunds.
Excluding that item: $0.72 - still above expectations, and at the top of the original $0.61 to $0.71 guidance.
And where those tariff refunds come from.
In February 2026 the US Supreme Court held that the International Emergency Economic Powers Act does not authorise the president to impose tariffs. I went into the budgetary consequences of that ruling in the piece on US debt.
HP sits on the receiving end of that ruling: tariffs it paid are coming back. And in the full-year outlook, the refunds contribute $0.19 to earnings per share.
And that is a one-off item in character. It is real, it enters the cash box, and it will not repeat next year.
Guidance
HP raised its full-year outlook:
| Fiscal 2026 | |
|---|---|
| GAAP earnings per share | $2.52 to $2.62 |
| Non-GAAP earnings per share | $3.19 to $3.29 |
| of which tariff refunds | $0.19 |
And for the fourth quarter: non-GAAP earnings per share of $0.69 to $0.79, including $0.08 of tariff refunds.
And note the direction: in the third quarter non-GAAP earnings were $0.83. Fourth-quarter guidance is below it.
What I Will Check Next Quarter
| Average price against margin | If price rises and margin does not, it is cost pass-through, not improvement |
| Units | -16% this quarter. A sustained fall in quantity is an erosion of the customer base |
| Printing supplies | -3% this quarter - that is the real profit engine |
| PC margin | 4.6% today |
| Tariff refunds | $0.19 this year, and zero next |
| A permanent chief executive | The company is running with an interim one |
הזווית שלי
דעה אישית של אילן אברמוב - לא ייעוץ ולא המלצה
What interests me in this report is that it looks good in every line taken alone, and less good when two are placed side by side.
Revenue above expectations, profit above expectations, guidance raised - all true. And alongside them: units down 16%, and a non-GAAP operating margin down from 7.1% to 6.5%.
And the question I am trying to settle is whether a 40% increase in average price is good news. If it comes from AI PCs and premium machines - yes, and that is a positive structural change in a business regarded for years as a commodity. If it comes from memory prices, then HP is simply passing on a cost increase, and the customer pays more for the same product.
The margin offers a hint, and not one favouring the optimistic reading. In a genuine mix improvement, margin should rise. Here it fell.
And what I hold as the more important point for the long run is actually the printing segment. It produces an 18.1% operating margin against 4.6% in PCs - that is, it is the profit engine - and it is shrinking. Supplies fell 3%, and hardware units 7%. And in a model where today's printer is tomorrow's ink, a fall in units today is a fall in profit two years out.
So the line I will open the next report with is not revenue, but units.
(It is important to stress: this is my personal opinion only, and nothing herein constitutes a recommendation to take any action.)
