Hewlett Packard (HPE) Q2 Earnings Beat, Revenues Down Y/Y

Hewlett Packard Enterprise Company HPE reported second-quarter fiscal 2019 non-GAAP earnings of 42 cents per share, beating the Zacks Consensus Estimate by 6 cents. The figure rallied 31.3% on a year-over-year basis.

However, net revenues of $7.15 billion declined 4.3% on a year-over-year basis and missed the Zacks Consensus Estimate of $7.44 billion. At constant currency (cc), revenues slid 2% year over year.

Excluding Tier-1 server sales, revenues inched up 1%. Notably, Tier 1 revenues declined 64% and accounted for 1.9% of revenues, much lower than 5% in the year-ago quarter.

Quarterly Details

Segment wise, Hybrid IT revenues of $5.64 billion declined 4.4% year over year (down 3% at cc).

Coming to Hybrid IT Products, Compute Value revenues slipped 5.2% (down 4% at cc) to $3.09 billion. However, the figure grew 4% excluding the impact from the company’s strategic exit of certain Tier-1 customer segments.

Hewlett Packard Enterprise’s Value Compute portfolio revenues increased nearly 8% at cc, aided by strong growth in high-performance compute, and hyper-converged and composable cloud offerings.

Hewlett Packard Enterprise Company Price, Consensus and EPS Surprise

Hewlett Packard Enterprise Company Price, Consensus and EPS Surprise

Hewlett Packard Enterprise Company price-consensus-eps-surprise-chart | Hewlett Packard Enterprise Company Quote

 

Storage revenues climbed 3.3% (5% at cc) to $942 million, with strength particularly in Nimble, XP and Entry Storage. Big data also witnessed a strong quarter, recording 25% year-over-year improvement. The company expects the recently announced acquisition of BlueData to ramp up the metric further.

HPE Pointnext revenues declined 6.8% (3% at cc) from the year-ago quarter to $1.60 billion.  HPE Pointnext operational services orders, including Nimble, were up 1% at cc.

Moreover, HPE Greenlake orders grew 39% year over year at cc.

Revenues from the Intelligent Edge declined 5.7% to $666 million, backed by strength in Aruba Services. Notably, Aruba Services revenues were up 15.6% (18% at cc). Revenues from Aruba Product decreased 8.3% (7% at cc).  

Hewlett Packard Enterprise’s Financial Services segment revenues decreased 2.2% (up 2% at cc) to $896 million. Net portfolio assets were down 2% year over year (up 1% at cc). Financing volumes declined 10% year over year (6% at cc).

Geographically, Hewlett Packard Enterprise’s revenues in the Americas (37% of revenues) declined 7% at cc. Both EMEA (38% of revenues) and APJ revenues increased 1% each at cc. Non-U.S. net revenues were 69% of net revenues.

Operating Results

Hewlett Packard Enterprise’s gross margin expanded 200 basis points (bps) on a year-over-year basis, driven by favorable portfolio mix and cost efficiencies.

Non-GAAP operating expenses were up 1% year over year.

Hybrid IT segment operating margin expanded 140 bps to 11.4%. Financial Services operating margin expanded 190 bps to 13.3%. However, Intelligent Edge operating margin contracted 490 bps to 3%.

Hewlett Packard Enterprise’s non-GAAP operating margin expanded 70 bps to 8.9%.

Balance Sheet and Cash Flow

The company ended the second quarter of fiscal 2019 with $3.59 billion in cash and cash equivalents compared with $3.78 billion at the end of the previous quarter.

During the quarter under review, Hewlett Packard Enterprise generated $987 million in cash flow from operational activities compared with $382 million in the prior quarter.

The company’s free cash flow was $402 million in the quarter under review.

Additionally, the company repurchased $814 million worth of shares and paid $157 million in dividends.

Guidance

For fiscal 2019, Hewlett Packard Enterprise expects non-GAAP earnings of $1.62-$1.72 per share compared with the earlier projection of $1.56-$1.66.

Management reiterated the free cash flow guidance of $1.4-$1.6 billion, indicating more than 35% growth from the figure reported in fiscal 2018.

For third-quarter fiscal 2019, Hewlett Packard Enterprise forecasts non-GAAP earnings between 40 cents and 44 cents.

Zacks Rank and Stocks to Consider

Hewlett Packard Enterprise currently carries a Zacks Rank #2 (Buy).

Some better-ranked stocks in the broader Computer & Technology sector include Cadence Design System CDNS, Verint Systems VRNT and Rosetta Stone RST. All three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Cadence, Verint and Rosetta Stone is projected to be 11%, 11% and 12.50%, respectively.

 

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