HP Inc. Class Action Lawsuit
- Company Name
- HP Inc.
- Stock Symbol
- Class Period
- February 23, 2017 to October 3, 2019
- Northern District of California
On February 19, 2020, the HP Inc. securities class action lawsuit was filed charging HP and certain of its officers with violations of the Securities Exchange Act of 1934. The HP securities class action lawsuit was commenced in the Northern District of California on behalf of purchasers of HP common stock between February 23, 2017 and October 3, 2019 (the “Class Period”) and is captioned Electrical Workers Pension Fund, Local 103, I.B.E.W. v. HP Inc., et al., No. 3:20-cv-01260.
HP is a global provider of personal computers, printers and related supplies. One of HP’s primary segments is Printing, which encompasses the Supplies business unit consisting of ink and laser cartridges. The Supplies business has been a significant revenue driver for HP. HP assessed its Supplies business through this “four-box” guidance model.
The HP securities class action lawsuit alleges that, throughout the Class Period, defendants falsely emphasized that the four-box model was an accurate, reliable tool to determine demand and revenue in HP’s Supplies business and reassured investors that, based on the four-box model, HP had a “clear line of sight to supply stabilization.” Defendants repeatedly made false and misleading statements to investors about the reliability of HP’s four-box model and the revenue growth of the Supplies business, touting their “continued confidence in the predictive value of the four box model” and stating that HP’s “Supplies revenue is in line with the expectations that we set, and that our 4-box model continues to drive predictability.” As a result of defendants’ misrepresentations, HP common stock traded at artificially inflated prices of more than $26 per share during the Class Period.
The truth emerged through a series of disclosures beginning on February 27, 2019, when HP reported disappointing total Supplies revenue for the first quarter of fiscal 2019. Significantly, in reporting these results, HP admitted that its four-box model had been based upon incorrect data concerning inventory, market share, and pricing assumptions. HP revised its market share and pricing assumptions and announced a plan to lower channel inventory levels, which created a $100 million headwind to HP’s Supplies revenue for the remainder of fiscal 2019. As a result, HP reduced its previous Supplies revenue guidance for fiscal 2019. Then, on May 30, 2019, HP admitted that the consumer segment of its Supplies business had access to telemetry data for years (real-time data from HP’s printers identifying the need for new toner), such that management should have known all along the importance of telemetry data for an accurate model and yet hid the fact that the commercial Supplies business lacked this key input.
Thereafter, on August 22, 2019, HP announced that its Chief Executive Officer, Dion J. Weisler, would be stepping down at the end of October 2019, stating that his resignation was due to a family health matter. HP also announced disappointing earnings results for the third quarter of fiscal 2019, with Supplies revenue down 7% year over year. HP also further reduced its Supplies revenue guidance for fiscal 2019.
Finally, on October 3, 2019, after the market closed, HP announced that it was “departing from the purely transactional Supplies-centric business model” and moving away from using the four-box model, transitioning instead to a hardware-driven business model. Under the new business model, HP would de-emphasize Supplies revenue “as the singular metric to determine [its] progress” and would instead focus on “the key metrics [of] service growth and operating profit dollars, which better reflect the system profitability.” HP also announced that, as part of a major restructuring, it expected to cut up to 16% of its global workforce. As a result of these disclosures, the price of HP common stock declined 10% to close at $16.64 per share on October 4, 2019.
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