Hewlett Packard Enterprise (HPE) 2nd Quarter Earnings: What to Expect

The future of Hewlett Packard Enterprise (HPE) is not clear as investors would like. And the extent to which the tech giant can grow shareholder value in the years ahead is subject of constant debate.

The company, however, is not leaving it up to chance. And investors will get a hint of HPE’s growth strategy when it reports second quarter fiscal 2019 results after the closing bell Thursday. One hint arrived early when HPE announced it had acquired high-end computing pioneer Cray for $1.3 billion, or $35 per share. The supercomputer market is one that is dominated by, among others, IBM (IBM), suggesting the industry is about to get even more competitive.

Given the recent struggles of HPE to grow revenue, the Cray acquisition should help. HPE, which has seen its shares decline 17% over the past year, says Cray’s line of supercomputers will help it scale up its high-performing computing offering to government agencies, universities and enterprise customers. Although Cray has been a loss maker for several quarters, the company has amassed a strong product portfolio as well as various patents HPE can leverage in scale the business.

What’s more, Cray’s customer base, which includes chemical giant BASF (BASFY), the U.S. Department of Defense and University of Notre Dame, to name a few, should immediately be accretive to HPE’s top line. While the company has beaten Wall Street’s consensus earnings estimates in six of the previous eight quarters, the numbers themselves have been less than stellar. On Thursday the company’s guidance will dictate what the stock does and how it believes Cray can boost the top line over the next 12 to 18 months.

In the three months that ended April, analysts expects the Palo Alto, Calif.-based tech giant to earn 37 cents per share on revenue of $7.4 billion. This compares to the year-ago quarter when earnings came to 34 cents per share on revenue of $7.47 billion. For the full year, ending October, earnings are projected to rise 8% year over year to $1.65 per share, while full-year revenue of $30.8 billion would be flat year over year.

The company has beaten Wall Street’s consensus earnings estimates in eight straight quarters. In the first quarter, HPE posted adjusted EPS of 42 cents per share. While that was down from the prior year period, it easily beat analysts' expectations of 35 cents. The company raised full-year guidance, suggesting it expects revenue to improve in the quarters ahead. It also reiterated free cash flow to come in between $1.4 billion and $1.6 billion.

The company is benefiting from improvements in various segments, namely the Intelligent Edge segment which saw robust growth with revenue rising 5% during the quarter $686 million. Financial Services revenue also performed well, rising 3% year over year to $919 million. Analysts will look for signs of continued improvement in these segments Thursday.

All told, HPE hasn’t blown the cover off the ball in the past couple of years, and it won’t do so this quarter. But it does appear that the ship is starting to turn. And investors should be content by continued cost-saving initiatives, combined with strategic expansion plans that can increase HPE’s profit margins and sustain long-term growth.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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Richard Saintvilus

After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.

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