HP Inc (NYSE:HPQ) Q3 2016 Earnings Conference Call - Final Transcript
Aug 24, 2016 • 05:00 pm ET
(Operator Instructions) Steve Milunovich, UBS.
Cathie, the 20.4% printer operating margin, what would that have been without the gains?
So it would have been about 3 points lower, so in line with what we saw in Q1 and Q2. And in fact, the best way to think about the shift from Q4 into Q3, because most of the gain has shown up in Q3, is to think about the halves. So in the first half, we were running in the 17% operating margin rate and we would expect normalized across both quarters to be roughly in that same zone.
You commented a bit on the Four Box Model being a little bit worse, but still within your expectations. Could you talk about each of those boxes and what's going on?
So we don't go through each of the boxes in detail. I just want to make sure that you understood the comment. So the comment was that on a year over year basis, the Four Box Model showed a decline in supply and that is roughly minus 3%, minus 4%, again, in line with what we saw last quarter as well. What Dion then did say is that while the Four Box Model was down, it was in line with what we had expected. So again, giving a proof point to the fact that the model is a good predictor of what the results are going to be.
Kulbinder Garcha, Credit Suisse.
Cathie, just going back to the previous one, if the gain was $280 million and your printing revenues are roughly $4.4 billion, the underlying margin would have been like 14%, am I doing something wrong?
Well, you didn't take in the fact that we told you that we were going to take that in divestiture gain and we were going to reinvest it. We were going to reinvest it in bringing channel inventories down, supplies channel inventories down over the course of the half by $450 million and we were also going to increase our marketing investments. So what the real impact is to Q3 on the upside is that we had the gain offset by half of the investments that we were going to make. But then, in Q4, we are going to have the second half of the investment and almost no gain to offset it.
And so, basically, if I understand it correctly, there's no reason after this quarter why you believe going forward, once you pass the next one why margins in printing shouldn't be in the normal range we've seen over the last two years. Is that a reasonable assumption?
That's exactly how you should think about it. It is just a shift between quarters. The half is in line with what we would expect. We've taken these gains and we have, as we told you, we would do on the June 21st call, we have reinvested it back into getting our channel inventories lower for the new model that we are executing on,