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DELL Q3 Earnings Top Estimates, Revenues Up on Strong PC Demand

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Dell Technologies DELL reported third-quarter fiscal 2022 non-GAAP earnings of $2.37 per share, beating the Zacks Consensus Estimate by 1.7% and increasing 17% year over year.

Revenues, on a non-GAAP basis, increased 21% year over year to $28.41 billion and beat the consensus mark by 3.8%.

Product revenues increased 24% year over year to $21.50 billion. Services revenues increased 12% year over year to $6.85 billion.

Dell shares are down 22.1% year to date, underperforming the Zacks Computers – IT Services industry’s return of 5.3% and the Computer & Technology sector’s return of 25.5%.

Quarter in Detail

Infrastructure Solutions Group (“ISG”) revenues were up 5% year over year to $8.43 billion.

Dell Technologies Inc. Price, Consensus and EPS Surprise

Dell Technologies Inc. Price, Consensus and EPS Surprise
Dell Technologies Inc. Price, Consensus and EPS Surprise

Dell Technologies Inc. price-consensus-eps-surprise-chart | Dell Technologies Inc. Quote

The upside can be attributed to 9% growth in servers and networking revenues that totaled $4.53 billion. Storage revenues inched up 1% year over year to $3.86 billion.

Client Solutions Group (“CSG”) revenues were $16.55 billion, up 35% year over year. Commercial revenues soared 40% year over year to $12.29 billion. Consumer revenues were up 21% to $4.25 billion.

In the consumer business, Dell Technologies witnessed strong growth in its high-value segments, including commercial PCs and high-end consumer gaming. Dell announced the launch of new Latitude Rugged notebooks. Dell also released the redesigned Alienware Aurora on the 25th anniversary of Alienware.

Dell Technologies was ranked third by Gartner and IDC among all PC vendors, trailing Lenovo and HP in their latest third-quarter report.

VMware revenues were $3.2 billion in the reported quarter, up 10% year over year, driven by portfolio strength. Operating income in the reported quarter was $837 million, unchanged year-over-year.

Operating Details

Non-GAAP gross profit increased 8% year over year to $8.41 billion. Gross margin contracted 300 basis points (bps) year over year to 33%.

Adjusted EBITDA increased 6% year over year to $3.41 billion. Adjusted EBITDA margin contracted 200 bps year over year to 12%.

Non-GAAP operating income was $2.87 billion, up 5% from the year-ago quarter’s levels. Operating margin contracted 200 bps year over year to 10%.

ISG’s operating income was up 1% year over year to reach $892 million. CSG’s operating income rallied 14% year over year to $1.15 billion.

VMware’s operating income remained unchanged year over year to $837 million.

Balance Sheet and Cash Flow

As of Oct 29, 2021, Dell had $22.41 billion in cash and cash equivalents.

Debt was $48 billion as of Oct 29, 2021. The company cleared $15.9 billion of debt year to date.

The core leverage ratio, as of the third quarter, is approximately 1.9 times as Dell continues to progress toward its long-term target of 1.5 times.

Cash flow from operations was $3.25 billion in the reported quarter.

Guidance

Dell Technologies expects fourth-quarter revenues in the range of $27-$28 billion, suggesting 12-16% growth on a year-over-year basis. The company expects the operating income rate to increase sequentially since the fourth quarter is a seasonally strong storage quarter.

For fourth-quarter, non-GAAP earnings is expected between $1.85 per share and $2.05 per share.

Zacks Rank & Upcoming Earnings to Watch

Dell Technologies carries a Zacks Rank #5 (Strong Sell).

Investors interested in the Computer & Technology sector are eagerly awaiting earnings releases from Hewlett Packard HPE, Salesforce CRM and Jabil JBL.

Hewlett Packard is set to release fourth-quarter fiscal 2021 results on Nov 30. The Zacks Consensus Estimate for earnings is pegged at 49 cents per share, unchanged in the past 30 days. Hewlett Packard sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Hewlett Packard’s shares have returned 26% year to date against the Zacks Computer-Integrated Systems industry’s decline of 1.4% and the Computer & Technology sector’s return of 25.5%.

salesforce, a Zacks Rank #2 (Buy) stock, is scheduled to release third-quarter fiscal 2022 results on Nov 30. The Zacks Consensus Estimate for earnings is at 92 cents per share, unchanged in the past 30 days.

salesforce’s shares have returned 28.9% year to date compared with the Zacks Computer-Software industry’s rise of 41.9%. CRM has outperformed the Computer & Technology sector’s return of 25.5% year to date.

Jabil is likely to release first-quarter fiscal 2022 results on Dec 16. The Zacks Consensus Estimate for earnings is at $1.80 per share, unchanged in the past 30 days.

Jabil’s shares have returned 43.9% year to date compared with the Zacks Electronics-Manufacturing Services industry’s rally of 31.9%. The stock has outperformed the Computer & Technology sector’s return of 25.5% year to date.


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