HP Enterprise Earnings Top Estimates, Sees First-Ever Double-Digit Sales Growth

Hewlett Packard Enterprise posted better-than-expected results for its fiscal second quarter ended April 30. The computing infrastructure company returned to top-line growth for the first time since 2018, with its first quarter of double-digit sales growth since it split off from the PC and printer company HP Inc. in 2015. The company said it had “better than normal sequential seasonality driven by strong demand.”

For the quarter, Hewlett Packard Enterprise (ticker: HPE) posted revenue of $6.7 billion, up 11% from a year earlier and ahead of the Street consensus forecast of $6.6 billion. Adjusted for currency, revenue was up 9%. Non-GAAP profits were 46 cents a share, ahead of both the guidance range of 38 to 44 cents and the Street consensus at 42 cents. On a GAAP basis, HP Enterprise earned 19 cents a share, well ahead of the guidance range of two to eight cents a share.

The company saw growth in every product category. In the core Compute segment, which includes enterprise servers, revenue was just under $3 billion, up 12% and a sharp improvement from a 1% drop in the January quarter. In High Performance Computing and Mission Critical Systems, revenue jumped 13%, reversing a 9% decline in the January quarter. Intelligent Edge, which provides edge-computing systems, accelerated to 20% growth, from 12% in the January quarter. Storage Systems revenue was up 5%, reversing a 5% slide one quarter earlier, while Financial Services revenue was again about flat.

One negative note is that operating margins were lower on a sequential basis in all hardware categories—Intelligent Edge had the biggest drop, down 3.4 percentage points to 15.5%, while both Storage and High Performance computing had margin dips of almost three percentage points.

In an interview with Barron’s, HP Enterprise CEO Antonio Neri said the drop in operating margins on a sequential basis reflects accelerated hiring in growth businesses—and wasn’t related to tighter component supplies. He noted that gross margins in the quarter were a record 34.3%. Neri also said that the company has factored in higher prices and tighter supply of DRAM and NAND memory chips into the guidance for the quarter and the full year.

“Our disciplined execution on our strategic priorities is positively impacting both top and bottom line performance,” Neri said in a statement. He added that the company is “strengthening” its core Compute and Storage businesses, “doubling down” on the faster growing Intelligent Edge and HPC businesses, and “accelerating our pivot to as-a-service.”

For the fiscal third quarter, the company sees profits of 38 to 44 cents on a non-GAAP basis; the midpoint of 41 cents is slightly below the Street consensus at 43 cents. The company sees GAAP profits for the quarter of four to 10 cents a share.

For the August 2021 fiscal year, HP Enterprise now sees non-GAAP profits of $1.82 to $1.94 a share, up from a previous forecast of $1.70 to $1.88. On a GAAP basis, the company’s revised guidance is for profits of 60 to 72 cents a share, up from a previous range of 48 to 66 cents. The company lifted its full-year forecast for free cash flow to a range of $1.2 billion to $1.5 billion, from a previous forecast of $1.1 billion to $1.4 billion.

In Tuesday’s regular session, HP Enterprise shares were up 0.8%, to $16.09. The stock is up 36% year to date. In late trading, the stock is off 2.1%, at $15.75.

source:barrons.com