Hewlett Packard Enterprise (HPE) Earnings: What To Expect

Hewlett Packard Enterprise (HPE) is set to report second quarter fiscal 2017 earnings results after the closing bell Wednesday.

A beat on the bottom line — its third in a row — wasn’t enough to keep shares of the Palo Alto, Calif.-based tech giant from plunging as much as 7% back in February when HPE released its first quarter earnings results. Although the company’s improvements were noticeable, particularly in the realm of the cloud where it competes with the likes of Amazon (AMZN) and Microsoft (MSFT), investors hated the fact that HPE suffered a double-digit revenue decline.

And it certainly didn't help that in April, the management reduced its earnings guidance to the range of $1.46 to $1.56 per share from prior guidance of $1.88 to $1.98 for the fiscal year. HPE shares have since bounced back and are up almost 9% year to date, compared with the 7% rise in the S&P 500 index. But for HPE shares to move higher from here, the company not only must show revenues have stabilized, but also that it can overcome macroeconomic challenges and tepid IT spending that its peers aren’t suffering from.

And to the extent it can also show that it’s become more of a threat to the aforementioned cloud duopoly in Amazon and Microsoft, the company’s transformation as a standalone entity since its separation from its printing arm, Hewlett Inc. (HPQ), would have been fully realized. For the quarter that ended April, Wall Street expects HPE to report EPS of 35 cents, down from 42 cents, while revenue of the $9.64 billion would decline 24% year over year.

For the full year ending October, earnings are projected to decline from $1.92 per share to $1.47 per share, while revenue of $35.83 billion would mark a 28% decline year over year. Notably, this is even though HPE under CEO Meg Whitman has used more of its growing cash on on the balance sheet on acquisitions aimed at growing revenue. But slower server demand and order cuts from what the company calls “tier 1 service providers” have impacted growth.

The company's focus on hardware for data centers instead of faster-growing software has posed a challenge. The market for the latter, particularly cloud services, is forecast to increase more than 20% annually. In that regard, how the company uses its cash ($10 billion and $3.5 billion in cash flow) going forward will be a focal point in the quarters ahead.

"We believe that investors remain focused on how HPE can utilize their cash balance to make further transformative acquisitions to bolster growth and/or return excess capital to shareholders," said Morgan Stanley analyst Katy Huberty in a report Tuesday. Meg Whitman remains confident, insisting that her company is heading in the right direction. But with HPE stock still up 40% over the past year, investors would demand action, not words to justify holding their positions.

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

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

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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