HPQ — Q3 2026 Financial Report Analysis

PC prices up 41%, PC units down 16%: HP's revenue jumped because memory got expensive

HP's fiscal third quarter (the three months from May 1 to July 31, 2026) produced record third-quarter revenue of $15.68 billion, up 12.5% from $13.93 billion a year earlier (up 10.9% in constant currency, i.e. stripping out the boost from a weaker dollar). But almost none of that growth came from selling more machines. In Personal Systems (PCs), HP shipped 15.8% fewer units while the average selling price (ASP — the average price per unit sold) rose 40.8%. The 10-Q attributes the ASP jump "primarily" to "pricing actions to mitigate higher commodity costs," with favorable currency and mix as secondary factors. Put simply, memory and storage chips got much more expensive, HP passed the cost on, and it deliberately shipped fewer, higher-priced PCs rather than chase volume.

The profit picture is harder to read, because three one-off items affect both this year and last year:

• Tariff refunds helped this quarter. After the U.S. Supreme Court ruled on February 20, 2026 that tariffs imposed under the International Emergency Economic Powers Act (IEEPA) were not authorized, HP received $127 million of refunds in the quarter. They were booked as a reduction in product costs, and HP says they added $0.11 to EPS (earnings per share).
• Last year had a tax benefit. A year ago HP recorded a $139 million tax benefit (an effective tax rate of -22.3%) versus a normal-looking $137 million tax charge (17.2%) this quarter.
• Last year also had a litigation gain. The prior-year quarter included a gain from "a single litigation matter that does not relate to HP's ongoing business operations."

That is why GAAP net earnings (the official accounting profit) fell 13.4% while HP's adjusted, non-GAAP EPS rose 10.7%.

Key metrics

Gross margin is revenue minus the direct cost of making the products, as a share of revenue. Operating margin is what's left after also paying for R&D, sales and administration, before interest and tax. Non-GAAP figures are HP's own adjusted numbers that exclude restructuring, amortization of acquired intangibles and certain litigation and tax items.

Why margins went the wrong way even as revenue rose

Gross margin fell 1.7 percentage points to 18.8%. The 10-Q says this was "primarily driven by higher commodity costs and unfavorable mix shifts towards Personal Systems, partially offset by pricing actions including favorable currency impacts, and IEEPA tariff refunds." The mix point matters: PCs earn much thinner margins than printing, so when PCs grow 18.5% and printing shrinks, the company-wide margin falls even if nothing else changes.

GAAP operating margin rose 0.6 points to 5.7%, but that was not because the business became more profitable. Two accounting lines were much smaller this year: restructuring charges fell to $48 million from $110 million, and amortization of intangible assets (the gradual write-off of the value of acquired businesses) fell to $75 million from $159 million, because the prior year included impairment charges. Take out the $127 million tariff refund and GAAP operating income would have been about $765 million, a margin of roughly 4.9%, below last year's 5.1%. HP's own non-GAAP operating margin, which excludes the restructuring and amortization swings but still includes the refund, fell to 6.5% from 7.1%.

Segments

Personal Systems (revenue $11.77 billion, +18.5%; operating margin 4.6% vs. 5.4%). Commercial PCs grew 21.9% on a 41.1% ASP increase despite 13.6% fewer units; consumer PCs grew 10.1% on a 37.1% ASP increase with 19.4% fewer units. Segment profit was essentially flat at $537 million versus $541 million: HP collected $1.8 billion more revenue from PCs and kept none of it as extra profit. The 10-Q says gross margin fell "primarily due to higher commodity costs, partially offset by pricing actions, IEEPA tariff refunds and favorable currency impacts." In other words, the price increases roughly covered the cost increases in dollars, not in percentage terms.

Printing (revenue $3.91 billion, -2.2%, or -3.6% in constant currency; operating margin 18.1% vs. 17.0%). Supplies (ink and toner, the most profitable part of HP) fell 2.8% "primarily due to a decline in installed base and usage" — fewer HP printers in use, printing less. Printer units fell 6.8%, which the filing attributes to "demand softness, particularly in China, as well as competitive pressures." The margin improvement came from tariff refunds and pricing, per the 10-Q, rather than from a stronger underlying business.

Cash, debt and restructuring

Operating cash flow was $1.74 billion and free cash flow (operating cash flow minus capital spending) was $1.57 billion, up 7%. Working capital did a lot of the work: inventory rose $1.17 billion in the quarter and receivables rose $1.07 billion, but accounts payable (money HP owes suppliers) rose $2.19 billion, more than offsetting both. Inventory stood at $10.3 billion (73 days of cost of sales), up from $8.5 billion at the start of the fiscal year, which HP attributes to "higher commodity costs." HP returned $574 million to shareholders ($300 million of buybacks and $274 million of dividends) and repaid $602 million of debt.

The Fiscal 2026 restructuring plan, approved November 25, 2025, targets a reduction of roughly 4,000 to 6,000 employees through fiscal 2028, focused on AI adoption, with about $650 million of expected pre-tax charges; $0.5 billion had been incurred by July 31. Bruce Broussard is serving as interim CEO.

Takeaway: HP's 12.5% revenue growth is price inflation, not demand. PC units fell 15.8% and Personal Systems profit was flat on $1.8 billion more revenue, and excluding $127 million of one-time tariff refunds the GAAP operating margin would have been about 4.9%, below last year. The quarter shows HP can pass memory costs through to customers, but not that it can earn more from doing so.

Outlook

HP raised its full-year fiscal 2026 guidance: GAAP diluted EPS of $2.52–$2.62 and non-GAAP diluted EPS of $3.19–$3.29, both including $0.19 of estimated tariff refunds, and free cash flow of $3.0–$3.2 billion. For the fourth quarter (August–October 2026) it guided non-GAAP EPS of $0.69–$0.79 and GAAP EPS of $0.74–$0.84, both including $0.08 from expected refunds (HP received another $91 million after the quarter closed). Q3 EPS came in above the top of the previous guidance range on both measures.

For fiscal 2027, HP says it is still in its planning period and gives no guidance. In a September 21, 2026 8-K it disclosed a preliminary planning assumption that industry-wide PC unit volumes decline "roughly mid-single-digits" in calendar 2027.

Our read: stripping out the refunds HP itself quantifies, the Q4 non-GAAP guidance midpoint ($0.74 minus $0.08) implies about $0.66 of underlying EPS, below Q3's roughly $0.72 ($0.83 minus $0.11), so HP is not guiding to underlying improvement. The model now depends on memory-driven price increases continuing to stick while unit volumes shrink, and HP's own 2027 assumption is for fewer PCs sold industry-wide. Once tariff refunds run out, the Personal Systems margin (4.6% and falling) is the number to watch; printing supplies, the profit engine, is still slowly declining.