PCs may be a larger business for HP Inc. (HPQ) revenue-wise, but printers are still its main cash cow. That's a big reason why HP is off sharply following its latest earnings report, in spite of soundly beating sales estimates on the back of better-than-expected PC demand.

HP reported fiscal fourth-quarter revenue of $12.51 billion (up 2% annually) and adjusted EPS of 36 cents. The former topped a consensus analyst estimate of $11.89 billion, but the latter was only in-line. 

In addition, HP guided for fiscal first-quarter adjusted EPS of 35 cents to 38 cents, which at the midpoint falls short of a 38 cent consensus. Fiscal 2017 adjusted EPS guidance of $1.55 to $1.65 is in-line with a $1.60 consensus, and at the midpoint matches HP's fiscal 2016 EPS.

Shares are down 6.7% as of the time of this article. They went into earnings up 30% on the year.

Driving the fourth-quarter sales beat: Personal Systems division sales rose 4% annually to $8.01 billion, easily topping a consensus estimate of $7.46 billion. Operating income rose a healthy 18% to $346 million.

By contrast, the division's sales were flat in the third quarter, and down 10% in the second quarter. Notebook and consumer PC sales were the unit's biggest fourth-quarter growth drivers, but desktop and business PC sales also rose.

On the other hand, Printing revenue fell 8% to $4.56 billion, with operating income dropping 26% to $637 million. The former figure slightly beat a $4.49 billion consensus, but the latter slightly missed a $664 million consensus. HP's Printing division accounted for only 38% of the company's fiscal 2016 revenue, but it produced 73% of the year's segment operating profit.

Printing hardware unit sales managed to grow 1%, reversing the declines seen in recent quarters. On its earnings call, HP said it saw "improved competitive dynamics" relative to Japanese rivals (Canon, Epson, etc.) in this market, thanks to a strong yen. But the company's highly profitable supplies (ink) business posted a 12% revenue drop.

To be fair, supplies sales have been hurt this year by a printing sales model shift that has cut the amount of inventory held by HP resellers. After adjusting for this shift as well as forex swings, HP thinks its supplies revenue was down just 3% to 4%.

However, the company also forecasts supplies revenue will drop at an adjusted mid-single digit clip in the first quarter. And while HP is sticking to its target of "stabilizing" supplies revenue on a forex-adjusted basis by the end of 2017 -- some analysts seem to have their doubts about this -- it now says the "trajectory" of this stabilization "will not be linear," due to weak printer sales during much of fiscal 2016.

Though nothing to write home about, PC demand clearly doesn't look as bad as it did earlier this year. On the high-end, demand for sleek thin-and-light notebooks such as HP's Spectre and Envy models has grown, and so has interest in touchscreen notebooks and notebook/tablet convertibles such as Microsoft's (MSFT) Surface line. And on the low-end, Chromebooks and other cheap notebooks sporting solid-state drives have provided a sales boost.

HP's numbers come shortly after Mizuho analyst Vijay Rakesh issued an upbeat note on Intel  (INTC) that cited stronger-than-expected PC demand. Mizuho thinks PC builds are trending up 3% to 6% sequentially in the calendar fourth quarter, better than initial expectations for growth to be flat to down 5%.

In addition, supply chain sources talking to Taiwan's Digitimes report some notebook makers have been "pulling in" component orders due to strong demand, leading to supply shortages.

But the printing market remains in rougher shape. With each passing year, the number of items being printed by consumers and businesses keeps declining, as online services and mobile devices provide digital alternatives for viewing and sharing documents and photos, as well as for filling out forms and signing documents.

HP has talked a good game about turning its printing operations around with the help of investments in growth areas such as graphics printing, managed print services (MPS) and 3-D printing. It's also banking on the pending acquisition of Samsung's printer business to both increase the Printing division's scale and help it go after the A3-format copier market.

Until those bets pay off, however, there isn't a lot HP can do to keep its Printing sales from declining in tandem with the end-market the business addresses.

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