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Hewlett Packard (HPE) Q4 Earnings & Revenues Beat Estimates

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·5 min read
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Hewlett Packard Enterprise Company HPE delivered fourth-quarter fiscal 2020 non-GAAP earnings of 37 cents per share, which surpassed the Zacks Consensus Estimate of 34 cents. However, the reported figure comes in lower than the year-ago number of 49 cents.

Revenues of $7.2 billion were down 0.1% from the prior-year quarter. However, the top line grew 6% sequentially and 5% at constant currency, mainly driven by solid execution in clearing a backlog of approximately $250 million. The reported figure beat the Zacks Consensus Estimate of $6.88 billion.

The top-line growth was primarily driven by strong momentum in the as-a-service platform and significant contributions from growth businesses such as HPC & MCS and Intelligent Edge.

Moreover, higher demand for the company’s edge-to-cloud and software-as-a-service data storage solutions in the coronavirus-induced remote working environment was a major growth driver. Also, growing traction of its cloud-native Aruba Edge Services platform has benefited the company’s quarterly results.

Further, the annualized revenue run-rate (ARR) was up 30% year over year and 11% sequentially, to $585 million.

Quarterly Details

Segment-wise, the company registered sequential sales growth across most of its business segments.

Revenues from the Storage business were up 8% sequentially to $1.2 billion on improved operations, execution and reduction in backlog. HPC & MCS revenues grew 50% quarter on quarter to $975 million, primarily due to strong adoption of Cray, HPC-Apollo and MCS.

Revenues in the Intelligent Edge division rose 15% sequentially to $786 million during the quarter. A&PS sales rose 8% quarter on quarter to $245 million and Financial Service revenues were up 5% sequentially to $849 million.

Additionally, a significant contribution from the company’s solid partner base, which includes Citrix, Nutanix, NVIDIA Corporation NVDA, VMware VMW and Wipro, has driven customer base expansion in the fourth quarter.

However, The Compute division’s sales declined 6% quarter on quarter to $3.2 billion.

Notably, the company partnered with Red Hat and NVIDIA to launch HPE Inference Solution on HP ProLiant servers to facilitate machine learning in Artificial Intelligence (AI) and containers market.

Further, Hewlett Packard completed the acquisition of Silver Peak in the recently concluded quarter. Management expects this acquisition to fuel growth for the company’s Aruba SD-WAN (Software-Defined Wide Area Network) solution.

Operating Results

Non-GAAP gross margin of 30.6% contracted 270 basis points (bps) on a year-over-year basis while increasing 20 bps sequentially.

HPE’s non-GAAP operating profit climbed 15.1% quarter on quarter to $557 million. Non-GAAP operating margin of 7.7% improved 60 bps sequentially but shrunk 250 bps from the year-ago quarter’s level.

Balance Sheet and Cash Flow

The company ended the fiscal fourth quarter with $4.23 billion in cash and cash equivalents compared with the $8.47 billion recorded at the end of the third quarter.

During the reported period, Hewlett Packard generated operating and free cash flows of $747 million and $223 million, respectively. During fiscal 2020, it generated operating and free cash flows of $2.24 billion and $560 million, respectively.

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 continues to expect at least $800 million in annualized savings by the end of fiscal 2022.

Guidance

For first-quarter fiscal 2021, Hewlett Packard expects non-GAAP earnings between 40 cents and 44 cents per share. Further, the company expects strong consumer demand for its cloud services to continue in the fiscal first quarter. Moreover, the contribution from Silver Peak’s acquisition is expected to serve as a key catalyst for the company’s SD-WAN platform.

Additionally, the company raised its fiscal 2021 non-GAAP earnings outlook to $1.60-$1.78 from $1.56-$1.76 forecasted earlier.

Zacks Rank and A Stock to Consider

Currently, Hewlett Packard carries a Zacks Rank of 5 (Strong Sell).

Another top-ranked stock in the broader technology sector is Avnet, Inc. AVT. Avnet sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The long-term earnings growth rate for Avnet is currently pegged at 19%.

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