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Hewlett Packard (HPE) Q3 Earnings & Revenues Beat Estimates

Hewlett Packard Enterprise Company HPE delivered third-quarter fiscal 2020 non-GAAP earnings of 32 cents per share, which surpassed the Zacks Consensus Estimate of 25 cents. However, the reported figure comes in lower than the year-ago number of 45 cents.

Revenues of $6.8 billion were down 6% from the prior-year quarter and 4% in constant currency. However, the top line grew 13% sequentially mainly driven by solid execution in clearing a backlog of approximately $500 million. The reported figure beat the Zacks Consensus Estimate of $6.14 billion.

Quarterly Details

Segment wise, the company registered sequential sales growth across most of its business segments. The Compute division’s sales increased 28% quarter on quarter to $3.4 billion, thanks to better execution against the backlog and an improved supply chain.

Revenues from the Storage business were up 4% sequentially to $1.1 billion on improved operations, execution and reduction in backlog. HPC & MCS revenues grew 10% quarter on quarter to $649 million, primarily on improved installations and customer acceptance of the systems. Revenues in the Intelligent Edge division rose 3% sequentially to $684 million during the quarter.

Hewlett Packard Enterprise Company Price, Consensus and EPS Surprise

Hewlett Packard Enterprise Company Price, Consensus and EPS Surprise

Hewlett Packard Enterprise Company price-consensus-eps-surprise-chart | Hewlett Packard Enterprise Company Quote

The company registered revenue declines across its A&PS and Financial Service businesses.  A&PS sales declined 5% quarter on quarter to $226 million as the COVID-19 pandemic impacted consulting activities of the division’s team members. Financial Service revenues were down 3% sequentially to $811 million.

Operating Results

Non-GAAP gross margin of 30.4% contracted 360 basis points (bps) on a year-over-year basis and 160 bps sequentially.

HPE’s non-GAAP operating profit climbed 33% quarter on quarter to $484 million. Non-GAAP operating margin of 7.1% improved 100 bps sequentially but shrunk 280 bps from the year-ago quarter level.

Balance Sheet and Cash Flow

The company ended the fiscal third quarter with $8.47 billion in cash and cash equivalents compared with the $5.13 billion recorded at the end of the second quarter.

During the reported period, Hewlett Packard Enterprise generated operating and free cash flows of $1.5 billion and $924 million. During the first nine months of fiscal 2020, it generated operating and free cash flows of $1.49 billion and $337 million.

Moreover, management provided an update on its cost-optimization plan which will be implemented through fiscal 2022, including changes to the company’s workforce, real estate model and business process improvements. Hewlett Packard expects at least $800 million in annualized savings by the end of fiscal 2022.

Zacks Rank and Other Key Picks

Currently, Hewlett Packard carries a Zacks Rank of 2 (Buy).

Other top-ranked stocks in the broader technology sector include Apple AAPL, Lam Research Corporation LRCX and Synaptics SYNA, all sporting a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

The long-term earnings growth rate for Apple, Lam Research and Synaptics is currently pegged at 10.7%, 15.4%, and 10%, respectively.

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