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Why Is Hewlett Packard Enterprise (HPE) Up 15.4% Since Last Earnings Report?
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A month has gone by since the last earnings report for Hewlett Packard Enterprise (HPE - Free Report) . Shares have added about 15.4% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Hewlett Packard Enterprise due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Hewlett Packard Beats Q3 Earnings and Revenue Estimates
Hewlett Packard Enterprise reported better-than-expected results for the third quarter of fiscal 2024. Hewlett Packard Enterprise reported non-GAAP earnings of 50 cents per share for the fiscal third quarter, which beat the Zacks Consensus Estimate of 46 cents.
The bottom line came above management’s guidance range of 43-48 cents. The better-than-expected bottom-line performance was primarily driven by stronger-than-expected sales growth and the benefits of disciplined operating cost management.
Moreover, the reported non-GAAP earnings figure grew 2% year over year and 19% sequentially. The rise can primarily be attributed to the strong top-line growth combined with prudent cost management to increase profitability.
Top-Line Performance of HPE
Hewlett Packard’s third-quarter revenues of $7.71 billion increased 10% from the prior-year quarter and 7% sequentially, driven by a recovery in enterprise division and growth in artificial intelligence, hybrid cloud and networking. HPE’s AI systems division grew 40% sequentially.
The top line surpassed the Zacks Consensus Estimate of $7.64 billion and came within management’s guidance range of $7.4-$7.8 billion. In constant currency, third-quarter revenues increased 10% year over year. The annualized revenue run rate during the quarter was up 35% year over year to $1.7 billion.
HPE's Segment-Wise Performance
Hewlett Packard’s server segment sales soared 35% (up 35% at cc) year over year and 10.7% sequentially to $4.28 billion, driven by strong demand for its AI servers as well as recovery in server systems. The division reported an operating profit margin of 10.8%, up 70 basis points (bps) from the year-ago quarter but down 20 bps from the previous quarter.
Revenues in the Intelligent Edge division plunged 23% (down 23% at cc) year over year and rose 3.2% sequentially to $1.12 billion during the quarter. The decline reflects strong backlog consumption during the year-ago and previous quarters, leading to difficult comparisons. Hewlett Packard Enterprise stated that demand is recovering in this segment, backlogs have normalized and the segment has healthy inventory levels.
The division’s operating profit margin of 21.8% contracted 520 bps from the year-ago quarter but expanded 280 bps sequentially. HPE recorded lower backlogs, a reduced mix of switching businesses and lower revenues from the backlog as the main reasons behind the decline in this division’s operating margin.
In the first quarter of fiscal 2024, HPE restructured its business by introducing the hybrid cloud business, which comprises storage and part of the server business that accounts for HPE GreenLake as well. The hybrid cloud division’s sales declined 7% (down 7% at cc) year over year but increased 3.5% sequentially to $1.3 billion. The company stated that the pressure from rising commodity costs, including the cost of SSDs, will weigh down the segment. The division reported an operating profit margin of 5.1%, which declined 30 bps from the year-ago quarter but expanded 440 bps sequentially.
The Financial service segment’s revenues of $879 million increased 1% (up 1% in cc) year over year and expanded 1.4% sequentially. The segment’s operating margin of 9% expanded 80 bps year over year but contracted 30 bps sequentially. Net portfolio assets of $13.2 billion decreased 2.7% year over year (down 0.6% in cc). Corporate Investments & Other revenues were $262 million, up 6.5% year over year and 4% sequentially.
Operating Results of HPE
The non-GAAP gross profit came at $2.45 billion, down 2.6% year over year but up 2.8% sequentially. The non-GAAP gross margin contracted 410 bps on a year-over-year basis and 130 bps on a quarter-over-quarter basis to 31.8%. The contraction in the gross margin was primarily driven by a mix shift from high-margin Intelligent Edge revenues to Server revenues, along with an unfavorable mix within the hybrid cloud.
Hewlett Packard Enterprise’s non-GAAP operating profit increased 7.4% year over year and 12.7% sequentially to $771 million. The non-GAAP operating margin contracted 30 bps year over year and expanded 50 bps sequentially to 10%. The negative impact of the lower gross margin was partially offset by disciplined operating expense management. Third-quarter non-GAAP operating expenses declined 7% year over year.
HPE’s Balance Sheet and Cash Flow
Hewlett Packard Enterprise ended the fiscal third quarter with $3.64 billion in cash and cash equivalents compared with $2.68 billion at the end of the previous quarter.
In the fiscal third quarter, HPE generated operating cash flow and free cash flow of $1.15 billion and $669 million, respectively. In the first nine months of fiscal 2024, it generated operating cash flow and free cash flow of $2.31 billion and $797 million, respectively.
HPE returned $221 million to shareholders in the third quarter of fiscal 2024 through dividends and share repurchases.
Guidance for Q4 and FY24
Hewlett Packard Enterprise initiated guidance for the fiscal fourth quarter and 2024. The company forecasts to generate revenues between $8.1 billion and $8.4 billion in the fiscal fourth quarter. The company estimates GAAP and non-GAAP net earnings per share (EPS) in the range of 76-81 cents and 52-57 cents, respectively.
For fiscal 2024, HPE revised revenues and non-GAAP EPS guidance. HPE’s revenues to grow in the range of 1-3% at cc. The company expects its non-GAAP EPS in the range of $1.92-$1.97 compared with the previous guidance of $1.85-$1.95. It expects GAAP EPS in the band of $1.68-$1.73 compared with the $1.61-$1.71 projected earlier.
For fiscal 2024, HPE projects its operating profit on a GAAP and non-GAAP basis in the range of 2-6% and 0-2%, respectively. It continues to expect free cash flow to be $1.9 billion in fiscal 2024.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates flatlined during the past month.
VGM Scores
At this time, Hewlett Packard Enterprise has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Hewlett Packard Enterprise has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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Why Is Hewlett Packard Enterprise (HPE) Up 15.4% Since Last Earnings Report?
A month has gone by since the last earnings report for Hewlett Packard Enterprise (HPE - Free Report) . Shares have added about 15.4% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Hewlett Packard Enterprise due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Hewlett Packard Beats Q3 Earnings and Revenue Estimates
Hewlett Packard Enterprise reported better-than-expected results for the third quarter of fiscal 2024. Hewlett Packard Enterprise reported non-GAAP earnings of 50 cents per share for the fiscal third quarter, which beat the Zacks Consensus Estimate of 46 cents.
The bottom line came above management’s guidance range of 43-48 cents. The better-than-expected bottom-line performance was primarily driven by stronger-than-expected sales growth and the benefits of disciplined operating cost management.
Moreover, the reported non-GAAP earnings figure grew 2% year over year and 19% sequentially. The rise can primarily be attributed to the strong top-line growth combined with prudent cost management to increase profitability.
Top-Line Performance of HPE
Hewlett Packard’s third-quarter revenues of $7.71 billion increased 10% from the prior-year quarter and 7% sequentially, driven by a recovery in enterprise division and growth in artificial intelligence, hybrid cloud and networking. HPE’s AI systems division grew 40% sequentially.
The top line surpassed the Zacks Consensus Estimate of $7.64 billion and came within management’s guidance range of $7.4-$7.8 billion. In constant currency, third-quarter revenues increased 10% year over year. The annualized revenue run rate during the quarter was up 35% year over year to $1.7 billion.
HPE's Segment-Wise Performance
Hewlett Packard’s server segment sales soared 35% (up 35% at cc) year over year and 10.7% sequentially to $4.28 billion, driven by strong demand for its AI servers as well as recovery in server systems. The division reported an operating profit margin of 10.8%, up 70 basis points (bps) from the year-ago quarter but down 20 bps from the previous quarter.
Revenues in the Intelligent Edge division plunged 23% (down 23% at cc) year over year and rose 3.2% sequentially to $1.12 billion during the quarter. The decline reflects strong backlog consumption during the year-ago and previous quarters, leading to difficult comparisons. Hewlett Packard Enterprise stated that demand is recovering in this segment, backlogs have normalized and the segment has healthy inventory levels.
The division’s operating profit margin of 21.8% contracted 520 bps from the year-ago quarter but expanded 280 bps sequentially. HPE recorded lower backlogs, a reduced mix of switching businesses and lower revenues from the backlog as the main reasons behind the decline in this division’s operating margin.
In the first quarter of fiscal 2024, HPE restructured its business by introducing the hybrid cloud business, which comprises storage and part of the server business that accounts for HPE GreenLake as well. The hybrid cloud division’s sales declined 7% (down 7% at cc) year over year but increased 3.5% sequentially to $1.3 billion. The company stated that the pressure from rising commodity costs, including the cost of SSDs, will weigh down the segment. The division reported an operating profit margin of 5.1%, which declined 30 bps from the year-ago quarter but expanded 440 bps sequentially.
The Financial service segment’s revenues of $879 million increased 1% (up 1% in cc) year over year and expanded 1.4% sequentially. The segment’s operating margin of 9% expanded 80 bps year over year but contracted 30 bps sequentially. Net portfolio assets of $13.2 billion decreased 2.7% year over year (down 0.6% in cc). Corporate Investments & Other revenues were $262 million, up 6.5% year over year and 4% sequentially.
Operating Results of HPE
The non-GAAP gross profit came at $2.45 billion, down 2.6% year over year but up 2.8% sequentially. The non-GAAP gross margin contracted 410 bps on a year-over-year basis and 130 bps on a quarter-over-quarter basis to 31.8%. The contraction in the gross margin was primarily driven by a mix shift from high-margin Intelligent Edge revenues to Server revenues, along with an unfavorable mix within the hybrid cloud.
Hewlett Packard Enterprise’s non-GAAP operating profit increased 7.4% year over year and 12.7% sequentially to $771 million. The non-GAAP operating margin contracted 30 bps year over year and expanded 50 bps sequentially to 10%. The negative impact of the lower gross margin was partially offset by disciplined operating expense management. Third-quarter non-GAAP operating expenses declined 7% year over year.
HPE’s Balance Sheet and Cash Flow
Hewlett Packard Enterprise ended the fiscal third quarter with $3.64 billion in cash and cash equivalents compared with $2.68 billion at the end of the previous quarter.
In the fiscal third quarter, HPE generated operating cash flow and free cash flow of $1.15 billion and $669 million, respectively. In the first nine months of fiscal 2024, it generated operating cash flow and free cash flow of $2.31 billion and $797 million, respectively.
HPE returned $221 million to shareholders in the third quarter of fiscal 2024 through dividends and share repurchases.
Guidance for Q4 and FY24
Hewlett Packard Enterprise initiated guidance for the fiscal fourth quarter and 2024. The company forecasts to generate revenues between $8.1 billion and $8.4 billion in the fiscal fourth quarter. The company estimates GAAP and non-GAAP net earnings per share (EPS) in the range of 76-81 cents and 52-57 cents, respectively.
For fiscal 2024, HPE revised revenues and non-GAAP EPS guidance. HPE’s revenues to grow in the range of 1-3% at cc. The company expects its non-GAAP EPS in the range of $1.92-$1.97 compared with the previous guidance of $1.85-$1.95. It expects GAAP EPS in the band of $1.68-$1.73 compared with the $1.61-$1.71 projected earlier.
For fiscal 2024, HPE projects its operating profit on a GAAP and non-GAAP basis in the range of 2-6% and 0-2%, respectively. It continues to expect free cash flow to be $1.9 billion in fiscal 2024.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates flatlined during the past month.
VGM Scores
At this time, Hewlett Packard Enterprise has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Hewlett Packard Enterprise has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.