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Printing revenues fell by a whopping 17% in the fiscal first quarter.

On Wednesday, hardware manufacturer HP (NYSE:HPQ) reported results for its fiscal first quarter, which ended Jan. 31 -- its first full quarter of operations since it spun off its enterprise business as Hewlett-Packard Enterprise.  On the face of it, the headline numbers, both achieved and forward-looking, were in line with expectations -- but the market is not having it. Shares of HP were down by 4.9% at 3:20 p.m. EST, having been off by as much as 8% earlier in the day.

The following table highlights some of the key numbers:

Metric

Actual

Year-Over-Year Growth 

Surprise relative to consensus estimate

Revenues

$12.25 billion (12%) 0.7%

Revenues -- Personal Systems

$7.5 billion (13%) --

Revenues -- Printing

$4.6 billion

(17%) --

Adjusted EPS

$0.36

(12%) 0%

Sources: HP, Bloomberg

Those ugly declines, though they're partially the product of currency headwinds, tell a stark tale. There is simply no getting away from the fact that, as CEO Dion Weisler pointed out, "[w]e're operating in markets that are challenged ... you can hope it gets better, but in my mind, hope is not a strategy."

Weisler isn't one to rely on hope either, and, as he pointed out, the company does have some levers at its disposal: "We're operating in markets that are consolidating in many cases -- and that we see opportunity to outpace our competitors. We see opportunity to take costs out of our system."

Taking costs out is exactly what HP continues to do -- at an accelerated pace, even. It now plans to reduce its headcount by 3,000 by the end of the current fiscal year, a reduction that had initially been scheduled to take place over three years.

Why, then, was there such a negative stock market reaction? HP hit its marks last quarter and it reaffirmed its full-year guidance for revenues and earnings per share. It's true that HP consumed cash through its operating activities last quarter rather than generating it (to the tune of $108 million, with negative free cash flow of $228 million), but that trend is not expected to last.

The company's free cash flow forecast for the full year is $2.2 billion to $2.6 billion, and while that is $100 million lower than it had previously predicted, the difference is due entirely to the aforementioned plans to bring job cuts forward to this year.

The stock market's reaction speaks to the difficulty of managing expectations for a business for which its main product markets are in decline, and for which the growth initiatives have not yet kicked in to any significant degree.

Even for a leading franchise like HP, the market ultimately requires a substantial discount to induce it to invest in a declining business, particularly when evidence of that decline has been accumulating for years, chipping away at investors' confidence. HP has produced just two quarters with positive year-over-year revenue growth in the past -- count 'em -- 19 quarters.

Which brings us to where we are today, with HP's stock trading at just 3.2 times trailing twelve months' cash flow and 6.2 times next twelve months' earnings-per-share estimate. I can't blame investors for marking the shares down. It's very difficult to get excited about a business that is contracting -- but I think the market may be underestimating both the progress being made at HP, and the drive and ability of its new CEO.

Still, for non-professional investors, it's probably best to keep in mind Warren Buffett's axiom on business economics vs. managerial talent: "[W]hen a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact."

Alex Dumortier, CFA has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.