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HPE Earnings Beat - Revenue Light - Guides Up

February 22, 2019

Hewlett Packard Enterprise reported financial results for its fiscal 2019 first quarter, ended January 31, 2019.

The firm noted Q1 profit of $177 million, or 13 cents a share, on revenue of $7.55 billion. Not counting certain items, earnings came in at 42 cents a share, up from 32 cents a share a year ago.

Wall Street was looking for adjusted earnings of 35 cents a share on sales of $7.62 billion.

HPE added five cents a share onto its projection for full-year adjusted profit, now guiding for $1.56 to $1.66 a share, after previously guiding at $1.51 to $1.61.

“Today we reported another strong quarter for Hewlett Packard Enterprise as we continue to execute against our strategy of growing in the Intelligent Edge and delivering profitable growth in Hybrid IT,” said Antonio Neri, President and CEO of HPE. “We significantly expanded both gross and operating margins and drove 31% growth in non-GAAP earnings per share. Looking forward, we are confident that HPE’s differentiated, software-defined solutions will continue to gain traction with customers looking to harness the explosion of data, driving accelerated revenue growth starting in Q2.”

Financial Summary

First quarter net revenue of $7.6 billion, in-line with guidance, down 2% from the prior-year period, and down 1% when adjusted for currency. First quarter net revenue was up 1% from the prior-year period, excluding Tier-1 server sales.

First quarter GAAP operating profit of $456 million, up 100% from the prior-year period.


First quarter non-GAAP operating profit of $669 million, up 19% from the prior-year period driven by 280 bps of gross margin expansion and cost reductions from HPE Next.

First quarter GAAP diluted net earnings per share (“EPS”) from continuing operations was $0.13, down from GAAP diluted net EPS from continuing operations of $0.92 in the prior-year period primarily due to one-time, non-cash adjustments related to U.S. tax reform.

First quarter non-GAAP diluted net EPS from continuing operations was $0.42, up from non-GAAP diluted net EPS from continuing operations of $0.32 in the prior-year period. First quarter non-GAAP net earnings from continuing operations and non-GAAP diluted net EPS from continuing operations exclude after-tax adjustments of $413 million and $0.29 per diluted share, respectively, primarily related to the impact of U.S. tax reform, tax indemnification adjustments, transformation costs, amortization of intangible assets, acquisition, disposition and other related charges and an adjustment to earnings from equity interests.

First quarter cash flow from operations of $382 million and free cash flow of ($190) million, was up $240 million and $222 million from the prior-year period, respectively.

Segment Results

HPE delivered strong performance in the key areas of the portfolio.  

  • Intelligent Edge delivered robust growth in this strategically important segment. Revenue was $686 million, up 5% year over year, with 1.3% operating margin. HPE Aruba Product revenue was up 3% with balanced growth across wired and WLAN. HPE Aruba Services revenue was up 20%. 
  • Hybrid IT continued to drive profit growth with revenue of $6.0 billion, down 3% year over year with 11.3% operating margin that was up 200 bps year over year. Compute revenue was down 3%. Excluding the impact from the company’s intentional exit of certain Tier-1 customer segments, Compute revenue grew 3% and HPE’s high-margin Value Compute portfolio grew approximately 20% driven by strength in high-performance compute, hyper-converged and composable. Storage revenue was up 3%, with particular strength in All-Flash Arrays, which grew 20%. HPE Pointnext revenue was down 6%, primarily due to the company’s intentional exit of certain geographies, and a strong book to bill of 110% indicates a strong pipeline of recurring revenue and profits.
  • Financial Services revenue was $919 million, up 3% year over year and up 6% when adjusted for currency, net portfolio assets were down 2% year over year and up 2% when adjusted for currency, and financing volume was down 3% year over year and flat when adjusted for currency. The business delivered an operating margin of 8.4%.
     

Raised FY 2019 Outlook

For the fiscal 2019 second quarter, Hewlett Packard Enterprise estimates GAAP diluted net EPS to be in the range of $0.19 to $0.23 and non-GAAP diluted net EPS to be in the range of $0.34 to $0.38. Fiscal 2019 second quarter non-GAAP diluted net EPS estimates exclude after-tax costs of approximately $0.15 per diluted share, primarily related to transformation costs and the amortization of intangible assets.

For fiscal 2019 full-year, Hewlett Packard Enterprise now estimates GAAP diluted net EPS to be in the range of $0.88 to $0.98 and the non-GAAP diluted net EPS to be in the range of $1.56 to $1.66. Fiscal 2019 non-GAAP diluted net EPS estimates exclude after-tax costs of approximately $0.68 per diluted share, primarily related to transformation costs, the amortization of intangible assets, and an adjustment to earnings from equity interests.

For fiscal 2019 full-year, Hewlett Packard Enterprise reiterates free cash flow guidance range of $1.4 to $1.6 billion, up over 35% from the prior year.

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