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HP Inc.'s revenue and earnings shrank in the most recent quarter, but the company showed signs of success in stabilizing the personal-computer business that is its largest revenue source.

The company said revenue from its personal systems business was flat in the third fiscal quarter after five quarters of declines, with unit PC sales up 4%. Revenue declined 14% in its printing segment—which generates most of HP's profits—reflecting the fact that users now print less than they once did.

But HP pointed to signs of improvement in that business as well, and the company's revenue and profit topped analyst expectations.

Dion Weisler, HP's chief executive, said he was "incredibly pleased" with the progress the company made in the quarter.

HP became independent last year as part of the breakup of the former Hewlett-Packard Co. While its two major businesses have failed to grow, its stock is up more than 20% in the year because it generates a steady flow of cash, much of which it uses for dividends and stock buybacks.

The company on Wednesday said it generated $1 billion in free cash flow in the third quarter, indicating it should meet a target of generating $2 billion to $2.3 billion in free cash flow for the fiscal year ending in October.

The No. 2 PC maker behind Lenovo Group Ltd., HP has suffered along with its peers as consumer spending has shifted to products such as smartphones. But market researchers recently concluded that the rate of decline had moderated in the second quarter.

International Data Corp. in July estimated HP's global quarterly PC shipments rose 5.1%, though the overall PC market fell 4.5%. Mr. Weisler has been pushing the company to focus on faster-growing parts of the market that command higher profit margins, such as gaming PCs and premium notebook models.

He said Wednesday that the strategy is paying off, as HP gained market share and average sales prices for consumer sales rose in the latest quarter.

The numbers are less rosy on the printer side. HP on Wednesday said revenue from toner and ink supplies fell 18%, while printing hardware unit sales slid 10%.

Another factor affecting HP's results concerns how it markets ink and toner and the amounts of those products held by its dealers and distributors. Mr. Weisler in June announced a strategy shift aimed at reducing distributor inventories and moving away from using periodic promotions to drive demand.

HP at the time predicted printing supplies revenue would go down by about $225 million in its fiscal third and fourth quarters because of the reduction of inventory in its sales channels. But it predicted that much of the revenue reduction would be offset by proceeds from the deal to sell some software assets to OpenText Corp.

In all, HP reported that earnings for the period ended July 31 declined 8% to $783 million, or 45 cents per share, from the year-earlier figures of $854 million, or 47 cents a share. Revenue fell 4% to $11.89 billion.

On an adjusted basis that excludes one-time items, HP put earnings per share at 48 cents. The company in June estimated per-share earnings on that basis between 43 cents and 46 cents. Analysts polled by Thomson Reuters had projected, on average, 44 cents a share in earnings on revenue of $11.4 billion.

For the fiscal fourth quarter ending in October, HP said it expects to report adjusted earnings of 34 cents to 37 cents a share. The average analyst estimate was for earnings of 41 cents a share, according to Thomson Reuters. HP didn't provide a revenue projection.

Write to Don Clark at don.clark@wsj.com

(END) Dow Jones Newswires

August 24, 2016 16:35 ET (20:35 GMT)

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