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Hewlett Packard (HPE) Q4 Earnings Beat Estimates, Sales Meet

Hewlett Packard Enterprise HPE reported fourth-quarter fiscal 2023 non-GAAP earnings of 52 cents per share, which came ahead of the Zacks Consensus Estimate by 4%. The reported figure was 9% lower than the year-ago quarter but was up 6% sequentially. The bottom line also came at the higher end of management’s guidance range of 48-52 cents per share.

Revenues of $7.35 billion decreased 7% (down 6% at constant currency [cc]) from the prior-year quarter but increased 5% sequentially. The top line was in line with the Zacks Consensus Estimate and came at the midpoint of management’s guidance range of $7.2-$7.5 billion. The annualized revenue run rate was up 39% year over year to $1.3 billion.

Hewlett Packard continued to witness the sustainable demand for its products and services during the quarter. Despite high inflationary pressure, macroeconomic headwinds and geopolitical issues, the company managed to report stronger-than-expected earnings and in-line revenues.

The top line benefited from exceptional performance in areas like the Intelligent Edge, where revenues remained much closer to quarterly records and HPE GreenLake, which continues to accelerate strategic pivot, generating higher recurring revenues and gross profit across four product segments, driven by the increased mix of high-margin software and services.

Hewlett Packard Enterprise Company Price, Consensus and EPS Surprise

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

Segment Performance

Segment-wise, High-Performance Compute & Artificial Intelligence revenues increased 38% (up 38% at cc) year over year and 41% sequentially to $1.18 billion, mainly driven by the continued strength of AI demand. The segment’s operating margin came in at 4.7%, up 120 basis points (bps) year over year and 550 bps sequentially, mainly driven by the positive benefits of scale.

Revenues in the Intelligent Edge division soared 41% (up 40% at cc) year over year to $1.36 billion during the quarter but declined 4% sequentially. The robust year-over-year surge was primarily driven by the strong demand for its software-centric solutions, such as HP Aruba Central cloud management software and SASE security software suite. The division’s operating profit margin of 29.5% expanded 1,600 bps from the year-ago quarter but contracted 20 bps sequentially.

Financial Service revenues increased 2% (flat at cc) from the prior-year period to $876 million. Quarterly revenues were marginally higher than the previous quarter’s revenues of $873 million. The segment’s operating margin of 8.9% contracted 220 bps year over year but improved 50 bps sequentially. Net portfolio assets of $13.1 billion increased 4.3% year over year.

The Compute division’s sales declined 31% (down 30% at cc) year over year and 1% sequentially to $2.6 billion. The decrease in revenues from the year-ago quarter reflects a tough year-over-year comparison. The division reported an operating profit margin of 9.8%, down 510 bps from the year-ago quarter and 110 bps from the previous quarter.

Revenues from the Storage business came in at $1.11 billion but declined 13% (12% at cc) from the year-ago quarter. However, the figure improved 3% sequentially. The division’s operating margin contracted 730 bps year over year and 260 bps sequentially to 8.1%.

Corporate Investments & Other revenues were $318 million, up 13% (12% at cc) year over year.

Operating Results

The non-GAAP gross profit increased 1.7% to $2.56 billion. Meanwhile, the non-GAAP margin expanded 170 basis points (bps) to 34.8%.

Hewlett Packard’s non-GAAP operating profit plunged 21.3% to $710 million, while the non-GAAP operating margin contracted 180 bps year over year to 9.7%.

Balance Sheet and Cash Flow

Hewlett Packard ended the fiscal fourth quarter with $4.27 billion in cash and cash equivalents compared with $2.91 billion at the end of the previous quarter.

In the fiscal fourth quarter, HPE generated $2.8 billion in cash for operational activities and $2.3 billion in free cash flow. During full fiscal 2023, it generated operating cash flow and free cash flow of $4.4 billion and $2.2 billion, respectively.

The company returned $1.04 billion to shareholders in fiscal 2023 by repurchasing $421 million worth of its common stock and $619 million in dividend payments in the reported quarter.

HPE announced that its board approved a quarterly cash dividend of 13 cents per share payable on Jan 11, 2024, to shareholders recorded as of Dec 13, 2023.

First-Quarter & FY24 Guidance

Hewlett Packard initiated guidance for the first quarter and updated the outlook for fiscal 2024. The company forecasts to generate revenues between $6.9 billion and $7.3 billion in the fiscal first quarter. The company estimates GAAP and non-GAAP diluted net earnings per share (EPS) in the range of 24-32 cents and 42-50 cents, respectively.

For fiscal 2023, HPE reiterates revenues and non-GAAP EPS guidance. HPE continues to anticipate 2-4% constant currency growth in revenues for fiscal 2024. The company reaffirmed its non-GAAP EPS guidance range of $1.82-$2.02 for fiscal 2024. However, it lowered the GAAP EPS forecast to $1.81-$2.01 from $1.83-$2.03 projected earlier.

For fiscal 2024, HPE anticipates operating profit growth on a GAAP and non-GAAP basis in the range of 15-21% and 3-5%, respectively. It also reiterates free cash flow guidance of $1.9-$2.1 billion for the fiscal. Moreover, it intends to return approximately 65-75% of its fiscal 2024 free cash flow to shareholders through share repurchases and dividend payouts.

Zacks Rank & Stocks to Consider

Hewlett Packard currently carries a Zacks Rank #3 (Hold). Shares of HPE have declined 2.8% year to date (YTD).

Some better-ranked stocks from the broader technology sector are Intel Corporation INTC, Aspen Technology, Inc. AZPN and Datadog, Inc. DDOG. Intel sports a Zacks Rank #1 (Strong Buy) at present, while Aspen and Datadog each carry a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Intel’s fourth-quarter 2023 earnings has moved a penny north to 44 cents per share in the past seven days. The consensus estimate for 2023 earnings has increased 4 cents to 95 cents in the past seven days.

Intel's earnings beat the Zacks Consensus Estimate in three of the trailing four quarters and missed once, delivering an average surprise of 136.3%. Shares of INTC have surged 67.3% YTD.

The Zacks Consensus Estimate for Aspen's second-quarter fiscal 2024 earnings has moved north 14 cents to $1.49 per share in the past 30 days. The consensus estimate for fiscal 2024 earnings has increased 5 cents to $6.63 per share in the past 30 days.

Aspen's earnings missed the Zacks Consensus Estimate in each of the trailing four quarters, delivering an average negative surprise of 32.3%. Shares of AZPN have dropped 10.7% YTD.

The Zacks Consensus Estimate for Datadog's fourth-quarter 2023 earnings has moved north 9 cents to 43 cents per share in the past 30 days. The consensus estimate for 2023 earnings has increased 19 cents to $1.51 per share in the past 30 days.

DDOG’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, delivering an average surprise of 28.6%. Datadog shares have rallied 55.4% YTD.

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