Hewlett Packard (HPE) Q4 Earnings Surpass Estimates, Up Y/Y

Hewlett Packard Enterprise Company HPE delivered fourth-quarter fiscal 2018 non-GAAP net earnings of 45 cents per share, which beat the Zacks Consensus Estimate of 43 cents. The bottom line also soared 55% on a year-over-year basis.

Management noted that the bottom line was driven by the company’s strong operational performance, favorable one-time benefits in other income and expenses and a lower-than-expected tax rate.

Hewlett Packard Enterprise reported revenues from continuing operations of $7.946 billion, up 4% on a year-over-year basis. Further, quarterly revenues outpaced the Zacks Consensus Estimate of $7.854 billion. This upside was aided by solid growth in Hybrid IT and Intelligent Edge segment.

Adjusted for currency-exchange rates, the company’s revenues from continuing operations increased 3% year over year.

Quarterly Details

Segment wise, Hybrid IT revenues of $6.4 billion rose 5% year over year and 4% at constant currency.

Coming to Hybrid IT Products, Compute Value revenues increased 9%, driven by a strong momentum across public and private sector deployments. Management noted that growth in high performance compute business is boosted by the big data analytics and specific segments like government, oil and gas, weather and academia.

Storage revenues grew 6% on the back of customer adoption of the intelligent storage offerings embedded with the company’s AI-based predictive analytics InfoSight platform and improvement in go-to-market execution. Double-digit rise in big data storage has been a tailwind. Data center networking revenues improved 2% in the reported quarter.

HPE Pointnext revenues dipped 3% from the year-ago quarter due to the company’s strategic move to exit from low-margin countries in the advisory and professional service business.

Revenues from the Intelligent Edge climbed 17% to $814 million, banking on strength across all geographies. Revenues from Aruba Product jumped 17%, riding on strong growth across all product lines, which include Campus Switching, Wireless LAN and Edge Compute. Aruba Services revenues were up 16% on consistent installed base growth due to a strong attach of the company’s software platform like ClearPass or Secure Network Access Control.

The company’s Financial Services segment revenues declined 7% to $939 million. A large one-time lease buyout deal in the year-ago period impacted the results. However, financing volume expanded 8%, driven by a strong performance across all regions and solid growth in direct business.

Geographically, Hewlett Packard Enterprise’s revenues in the Americas (42% of total) inched up 3%. Core compute and the Intelligent Edge grew in double digits in the region.

Revenues in Europe (36%) were up 11% driven by double-digit growth in the UK, France and Italy. EMEA results were attributable to strength in Core Compute and Intelligent Edge.

However, Asia Pacific revenues (22%) fell 5%, offset by 2% growth (excluding China) on the back of a solid uptick in Core Compute.

Hewlett Packard Enterprise Company Price, Consensus and EPS Surprise

Hewlett Packard Enterprise Company Price, Consensus and EPS Surprise | Hewlett Packard Enterprise Company Quote

Operating Results

Hewlett Packard Enterprise’s gross margin grew 120 basis points (bps) on a year-over-year basis to 30.9%. In addition, the company’s non-GAAP operating margin increased 190 bps to 10.1%. The improvement in margins was primarily attributed to cost savings from HPE Next.

Operating margin of Hybrid IT segment expanded 210 bps to 11.9%, driven by greater mix of Gen10, improved pricing and cost savings from HPE Next. Operating margin of Financial Services segment grew 20 bps to 7.8%.

However, operating margins of Intelligent Edge contracted 240 bps to 10.1% due to higher investments in sales and R&D.

Balance Sheet and Cash Flow

Hewlett Packard Enterprise ended the fiscal fourth quarter with $4.88 billion in cash and cash equivalents compared with $5.2 billion at the end of the previous quarter.

During the quarter under review, Hewlett Packard Enterprise generated $1.3 billion of cash flow from operational activities and free cash flow of $1 billion.

Additionally, during the quarter under consideration, the company returned $1.1 billion to shareholders, of which $983 million was through share repurchases and $163 million via dividend payments.

Guidance

For first-quarter fiscal 2019, Hewlett Packard Enterprise projects non-GAAP earnings per share in the range of 33-37 cents.

For the full fiscal, Hewlett Packard Enterprise expects non-GAAP earnings per share in the band of $1.51-$1.61.

Zacks Rank & Stocks to Consider

HPE currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader Computer and Technology sector are CACI International CACI, Intel INTC and Symantec Corporation SYMC, both sporting 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 CACI, Intel and Symantec is projected at 10%, 8.42% and 7.9%, respectively.

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