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Hewlett Packard (HPE) Down 7.7% Since Earnings Report: Can It Rebound?
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A month has gone by since the last earnings report for Hewlett Packard Enterprise Company (HPE - Free Report) . Shares have lost about 7.7% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Hewlett Packard Q1 Earnings Top, But View Weak
Hewlett Packard Enterprise reported better-than-expected bottom-line results for the first quarter of fiscal 2017, which also improved year over year. The company’s non-GAAP earnings of $0.45 per share came a penny ahead of the Zacks Consensus Estimate and were toward the high-end of the guided range of $0.42–$0.46 (mid-point:$0. 44). Also, it improved 9.8% on a year-over-year basis.
On a GAAP basis, the company reported earnings of $0.16, a penny higher than the year-ago quarter. Also, it was way above the guided range of $0.03 to $0.07 (mid-point: $0.05).
Quarter in Detail
Revenues
Hewlett Packard Enterprise reported total revenue of $11.407 billion, lagging the Zacks Consensus Estimate of $12.132 billion and down 10.4% year over year. The year-over-year decline was mainly due to heightened pressure from commodities pricing, unfavorable exchange rates, soft market condition and some execution issues. Adjusted for currency exchange rates and divestures, the company’s revenues were down just 4% year over year. Unfavorable currency exchange rates negatively impacted revenues by 140 basis points (bps).
During the quarter, the company witnessed uneven global demand across all regions. In the U.S., sales were impacted by tough market conditions particularly for Servers and Storage products. Europe’s contribution remained weak while Asia-Pacific and Japan (APJ) registered mixed demand with encouraging performance in Japan that was more than offset by dismal performance in the rest of Asia.
Segment-wise, revenues at the Enterprise Group were down 12% from the year-ago quarter to $6.3 billion. However, adjusting for divestures and currency, segment revenues were down 6%. Revenues from Servers, Storage, Networking and Technology Services were down 12%, 13%, 33% and 2%, respectively.
Enterprise Services revenues were down 11% to $4 billion. Adjusted for divestures and currency, the segment’s revenues declined 6%. Revenues were hurt by a 17% decline in Application and Business Services and an 8% drop in IT Outsourcing.
Software revenues were down 8% to $721 million. Adjusted for divestures and currency, the segment’s revenues were flat when compared with the year-ago quarter. Revenues from License, Support and Professional Services were down 9%, 9% and 7%, respectively. SaaS revenues, however, grew 4% year over year.
Financial Services revenues were up 6% to $823 million. The segment’s net portfolio went up 2% while financing volume plunged 10% year over year.
Operating Results
Hewlett Packard Enterprise’s gross margin expanded 50 basis points (bps) on a year-over-year basis to 28.9%. The year-over-year gross margin expansion was mainly driven by continued progress on the offshore labor mix of Enterprise Services.
Moreover, the company’s non-GAAP operating margin expanded 110 bps to 9.2% mainly due to a higher gross margin and decline in non-GAAP operating expenses as a percentage of revenues.
Balance Sheet and Cash Flow
Hewlett Packard Enterprise ended the first quarter with $9.86 billion in cash and cash equivalents, significantly down from $12.987 billion at the end of the previous quarter. Long-term debt during the quarter was $12.270 billion, compared with $12.608 billion last quarter.
During the quarter, Hewlett Packard Enterprise used $1.46 billion of cash flow for operational activities. However, it generated $200 million of free cash flow.
Moreover, during the quarter, the company returned $750 million to its shareholders, of which $641 million was through share repurchases and the remaining through dividend payments.
Guidance
The company revealed that three major headwinds, heightened pressure from unfavorable currency exchange movements, increased commodities pricing and some near-term execution issues, have developed since it initially provided outlook for 2017 at its Securities Analyst Meeting in Oct 2016. Citing these near-term challenges, Hewlett Packard Enterprise has lowered its earnings outlook for fiscal 2017.
The company now expects non-GAAP earnings per share in a range of $1.88 to $1.98 (mid-point $1.93), down from $2.00–$2.10 (mid-point: $2.05) projected earlier. GAAP earnings projection was also lowered to $0.60 – $0.70 from the previous projected range of $0.72 – $0.82.
The company also provided disappointing earnings guidance for second-quarter fiscal 2017. Hewlett Packard Enterprise expects non-GAAP earnings per share in a range of $0.41 – $0.45 (mid-point: $0.43). On a GAAP basis, the company guides the bottom line to be in a range of a loss of $0.03 to earnings of a penny.
The company did not provided any update on earnings outlook for post splits and divestitures as well as free cash flow. Notably, during its fourth-quarter fiscal 2016 results, the company had provided earnings outlook for post splits and divestitures. The company anticipates fiscal 2017 non-GAAP earnings to come in a range of $1.25 to $1.35 for the future HPE while reported earnings should be between $1.45 and $1.55.
Moreover, Hewlett Packard Enterprise anticipates free cash flow for the combined HPE to be $3.6 billion to $3.9 billion, while the future company will generate $2.1 billion to $2.4 billion in fiscal 2017.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There have been six revisions lower for the current quarter. While looking back an additional 30 days, we can see even more downward momentum. There have been seven downward revisions in the last two months. In the past month, the consensus estimate has shifted lower by 6.4% due to these changes.
Hewlett Packard Enterprise Company Price and Consensus
At this time, Hewlett Packard's stock has a subpar score of 'D' on both growth and momentum front. However, the stock was allocated a grade of 'B' on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'D'. If you aren't focused on one strategy, this score is the one you should be interested in.
The company's stock is suitable soley for value based on our styles scores.
Outlook
Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. It's no surprise that the stock has a Zacks Rank #5 (Strong Sell). We are expecting a below average return from the stock in the next few months.
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Hewlett Packard (HPE) Down 7.7% Since Earnings Report: Can It Rebound?
A month has gone by since the last earnings report for Hewlett Packard Enterprise Company (HPE - Free Report) . Shares have lost about 7.7% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Hewlett Packard Q1 Earnings Top, But View Weak
Hewlett Packard Enterprise reported better-than-expected bottom-line results for the first quarter of fiscal 2017, which also improved year over year. The company’s non-GAAP earnings of $0.45 per share came a penny ahead of the Zacks Consensus Estimate and were toward the high-end of the guided range of $0.42–$0.46 (mid-point:$0. 44). Also, it improved 9.8% on a year-over-year basis.
On a GAAP basis, the company reported earnings of $0.16, a penny higher than the year-ago quarter. Also, it was way above the guided range of $0.03 to $0.07 (mid-point: $0.05).
Quarter in Detail
Revenues
Hewlett Packard Enterprise reported total revenue of $11.407 billion, lagging the Zacks Consensus Estimate of $12.132 billion and down 10.4% year over year. The year-over-year decline was mainly due to heightened pressure from commodities pricing, unfavorable exchange rates, soft market condition and some execution issues. Adjusted for currency exchange rates and divestures, the company’s revenues were down just 4% year over year. Unfavorable currency exchange rates negatively impacted revenues by 140 basis points (bps).
During the quarter, the company witnessed uneven global demand across all regions. In the U.S., sales were impacted by tough market conditions particularly for Servers and Storage products. Europe’s contribution remained weak while Asia-Pacific and Japan (APJ) registered mixed demand with encouraging performance in Japan that was more than offset by dismal performance in the rest of Asia.
Segment-wise, revenues at the Enterprise Group were down 12% from the year-ago quarter to $6.3 billion. However, adjusting for divestures and currency, segment revenues were down 6%. Revenues from Servers, Storage, Networking and Technology Services were down 12%, 13%, 33% and 2%, respectively.
Enterprise Services revenues were down 11% to $4 billion. Adjusted for divestures and currency, the segment’s revenues declined 6%. Revenues were hurt by a 17% decline in Application and Business Services and an 8% drop in IT Outsourcing.
Software revenues were down 8% to $721 million. Adjusted for divestures and currency, the segment’s revenues were flat when compared with the year-ago quarter. Revenues from License, Support and Professional Services were down 9%, 9% and 7%, respectively. SaaS revenues, however, grew 4% year over year.
Financial Services revenues were up 6% to $823 million. The segment’s net portfolio went up 2% while financing volume plunged 10% year over year.
Operating Results
Hewlett Packard Enterprise’s gross margin expanded 50 basis points (bps) on a year-over-year basis to 28.9%. The year-over-year gross margin expansion was mainly driven by continued progress on the offshore labor mix of Enterprise Services.
Moreover, the company’s non-GAAP operating margin expanded 110 bps to 9.2% mainly due to a higher gross margin and decline in non-GAAP operating expenses as a percentage of revenues.
Balance Sheet and Cash Flow
Hewlett Packard Enterprise ended the first quarter with $9.86 billion in cash and cash equivalents, significantly down from $12.987 billion at the end of the previous quarter. Long-term debt during the quarter was $12.270 billion, compared with $12.608 billion last quarter.
During the quarter, Hewlett Packard Enterprise used $1.46 billion of cash flow for operational activities. However, it generated $200 million of free cash flow.
Moreover, during the quarter, the company returned $750 million to its shareholders, of which $641 million was through share repurchases and the remaining through dividend payments.
Guidance
The company revealed that three major headwinds, heightened pressure from unfavorable currency exchange movements, increased commodities pricing and some near-term execution issues, have developed since it initially provided outlook for 2017 at its Securities Analyst Meeting in Oct 2016. Citing these near-term challenges, Hewlett Packard Enterprise has lowered its earnings outlook for fiscal 2017.
The company now expects non-GAAP earnings per share in a range of $1.88 to $1.98 (mid-point $1.93), down from $2.00–$2.10 (mid-point: $2.05) projected earlier. GAAP earnings projection was also lowered to $0.60 – $0.70 from the previous projected range of $0.72 – $0.82.
The company also provided disappointing earnings guidance for second-quarter fiscal 2017. Hewlett Packard Enterprise expects non-GAAP earnings per share in a range of $0.41 – $0.45 (mid-point: $0.43). On a GAAP basis, the company guides the bottom line to be in a range of a loss of $0.03 to earnings of a penny.
The company did not provided any update on earnings outlook for post splits and divestitures as well as free cash flow. Notably, during its fourth-quarter fiscal 2016 results, the company had provided earnings outlook for post splits and divestitures. The company anticipates fiscal 2017 non-GAAP earnings to come in a range of $1.25 to $1.35 for the future HPE while reported earnings should be between $1.45 and $1.55.
Moreover, Hewlett Packard Enterprise anticipates free cash flow for the combined HPE to be $3.6 billion to $3.9 billion, while the future company will generate $2.1 billion to $2.4 billion in fiscal 2017.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There have been six revisions lower for the current quarter. While looking back an additional 30 days, we can see even more downward momentum. There have been seven downward revisions in the last two months. In the past month, the consensus estimate has shifted lower by 6.4% due to these changes.
Hewlett Packard Enterprise Company Price and Consensus
Hewlett Packard Enterprise Company Price and Consensus | Hewlett Packard Enterprise Company Quote
VGM Scores
At this time, Hewlett Packard's stock has a subpar score of 'D' on both growth and momentum front. However, the stock was allocated a grade of 'B' on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'D'. If you aren't focused on one strategy, this score is the one you should be interested in.
The company's stock is suitable soley for value based on our styles scores.
Outlook
Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. It's no surprise that the stock has a Zacks Rank #5 (Strong Sell). We are expecting a below average return from the stock in the next few months.