HP Inc. shares tumbled Friday to their lowest level in more than two years after the company announced a broad restructuring designed to cut costs and boost sales growth. It plans to cut as much as 16% of its workforce in the reorganization, which will cost $1 billion.
The personal computer giant also gave a forecast for its adjusted 2020 earnings, and it boosted its stock buyback program and lifted its dividend.
Analysts were cautious about the news, with Citi forecasting “turbulence ahead” for the stock. Though Wells Fargo wrote that some of the changes were “largely unavoidable,” Loop Capital Markets was surprised by the breadth of the plan and lowered its view on the stock to “hold.” Many firms wrote that there was elevated execution risk as a result of the restructuring.
HP shares dropped 9.6% on Friday to $16.64. They’re down 18.7% this year so far.
HP said Thursday afternoon that it will cut 7,000 to 9,000 positions through layoffs and voluntary early retirement. The Palo Alto company had 55,000 employees as of a year ago, the last time it disclosed the size of its workforce.
HP announced it expects profit, excluding restructuring costs and other items, to be $2.22 to $2.32 a share in fiscal 2020. Analysts, on average, estimated $2.23 a share, according to data compiled by Bloomberg.
The company faces a number of uncertainties. Dion Weisler, the chief executive who has shepherded the company since its 2015 split with Hewlett Packard Enterprise Co., is stepping down Nov. 1 for family health reasons. The incoming CEO, Enrique Lores, is a longtime HP executive. The company’s printing business, a major source of profit, has seen falling sales and recently was dubbed a “melting ice cube” by analysts at Sanford C. Bernstein. And an activist investor may be building a stake in the company, a Gordon Haskett analyst speculated Wednesday.
“We see ourselves starting a new chapter for HP, and we will be announcing bold moves to support that statement,” Lores said Thursday in an interview. “We have spent a lot of time building this plan. We can embrace the changes we see happening in the market, and that can help us position the company for the future.”
HP’s reorganization will cost $1 billion, resulting in charges of $100 million in the fiscal fourth quarter, $500 million in fiscal 2020 and the rest split between fiscal 2021 and 2022, the company said.
HP’s board boosted the company’s share repurchasing plan by an additional $5 billion. The company had $1.7 billion remaining on its existing plan. HP said it will also boost its stock dividend by 10%.
The company said it expects at least $3 billion of free cash flow in fiscal 2020 and will return 75% or more of that money to investors.
Along with financial metrics, the company said it would make changes to its printing unit to focus on providing more services. HP will raise prices for printers that can be used with non-HP ink cartridges so the hardware is more profitable. Currently, printers are sold cheaply and the unit’s operating profit margin is padded by the ink supplies. HP will offer some lower-priced printers but employ new technologies to ensure they are compatible only with HP ink.
HP will also start selling the underlying technology of its ink jet printing, known as microfluidics, to the healthcare and cosmetics industries, among others.