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Hewlett Packard (HPE) Q3 Earnings Beat, Revenues In Line

Hewlett Packard's (HPE) fiscal Q3 results reflect a benefit from the accelerated digital transformation amid the COVID-led work-from-home and online l...

This story originally appeared on Zacks

Hewlett Packard Enterprise Company HPE delivered third-quarter fiscal 2021 non-GAAP earnings of 46 cents per share, which surpassed the Zacks Consensus Estimate by 11.9% as well as the guided range of 38-44 cents. The reported figure also came in higher than the year-ago number of 36 cents.

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Revenues of $6.9 billion came in line with the Zacks Consensus Estimate and increased 1% from the prior-year quarter. Further, the annualized revenue run-rate (ARR) was up 33% year over year to $705 million.

Hewlett Packard Enterprise continues to witness strong demand for its products and services during the quarter mainly driven by accelerated digital transformation amid the COVID-led work-from-home. However, supply-chain constraint hurts its sales growth.

Hewlett Packard Enterprise Company Price, Consensus and EPS Surprise

Quarterly Details

Segment-wise, the company registered sales growth across all its business segments except for Compute.

Revenues from the Storage business were up 4% year over year to $1.18 billion. Nimble grew 10% from the prior-year quarter. Moreover, All Flash Array Storage increased 30% year over year, driven by the solid adoption of Primera All Flash.

High Performance Compute & Mission-Critical Systems (HPC & MCS) revenues increased 11% year on year to $741 million, primarily due to more customer acceptance.

Revenues in the Intelligent Edge division rose 27% year over year to $867 million during the quarter mainly driven by strong customer demand. Further, this was the third full quarter following Hewlett Packard’s acquisition of Silver Peak. Notably, Silver Peak contributed about 700 basis points toward the growth of Intelligent Edge revenues.

Financial Service revenues were up 4% year over year to $844 million.

The Compute division’s sales decreased 9% year on year to $3.1 billion.

Operating Results

Non-GAAP gross margin of 34.7% expanded 420 basis points (bps) on a year-over-year basis and 40 bps sequentially. Improvement in gross margin was mainly driven by strong pricing discipline, benefits from positive mix shift toward high-margin software-rich businesses, cost takeouts, and automation.

HPE’s non-GAAP operating profit margin increased 190 bps year over year to 9.8%. Savings from the cost optimization plan and improved productivity mainly led to year-over-year improvement in operating margin.

Balance Sheet and Cash Flow

The company ended the fiscal third quarter with $5.29 billion in cash and cash equivalents compared with $4.63 billion recorded at the end of the previous quarter.

During the reported period, Hewlett Packard generated operating and free cash flows of $1.13 billion and $526 million, respectively. During the first nine months of fiscal 2021, the company generated operating and free cash flows of $2.92 billion and $1.46 billion, 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. During its second-quarter earnings call, Hewlett Packard had reiterated that it continues to expect at least $800 million in annualized savings by the end of fiscal 2022 through its cost-optimization.

The company declared that a regular cash dividend of $0.12 per share will be paid out on Oct 6, 2021.

Raises Fiscal 2021 Outlook

Buoyed by stronger-than-expected third-quarter performance, Hewlett Packard Enterprise raised its fiscal 2021 non-GAAP earnings outlook to $1.88-$1.96 per share from $1.82-$1.94 forecast earlier. It also increased the free cash flow guidance range to $1.5-$1.7 billion from $1.2-$1.5 billion projected previously.

For fourth-quarter fiscal 2021, Hewlett Packard expects non-GAAP earnings between 44 cents and 52 cents per share.

Zacks Rank & Stocks to Consider

Hewlett Packard currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector include Microsoft MSFT, Cadence Design Systems CDNS, and Texas Instruments TXN, all carrying a Zacks Rank of 2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The long-term earnings growth rate for Microsoft, Cadence Design, and Texas Instruments is currently pegged at 11.1%, 11.7%, and 9.3%, respectively.

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