HPE Posts Mixed Q2 Results, Raises FY19 EPS View

HPE Posts Mixed Q2 Results, Raises FY19 EPS View
May 24, 2019


After the market closed on Thursday, Hewlett Packard Enterprise (HPE) reported a second-quarter profit that surpassed the Wall Street estimates. However, revenues missed analysts’ anticipations. The company also upwardly revised its full-year earnings outlook. HPE ended Thursday’s trading session at $14.32, down $0.39 or 2.65%, on the NYSE. In the after-hours trade, at the time of writing this article, the stock had gained $0.08 or 0.56% to trade at $14.40.

Palo Alto, California-based Hewlett posted revenues of $7.15 billion in 2Q19, an increase of 4.3% from $7.47 billion in the corresponding quarter last year. For the second quarter, net profit declined almost by half to $419 million or $0.30 per share, from $778 million or $0.49 per share in the year-ago period. Excluding charges, adjusted earnings increased to $579 million or $0.42 per share in the recent quarter, from $506 million or $0.32 per share last year.

Analysts polled by Thomson Reuters estimated HPE to post earnings of $0.37 per share on revenues of $7.40 billion.

Commenting on the results, CEO Antonio Neri said: “In Q2 we demonstrated traction in critical areas for our customers that delivered strong margin improvement, EPS above our outlook and solid cash flow.”

Segment wise:

Intelligent Edge revenue decreased 6% y-o-y to $666 million. HPE Aruba Product revenue declined 8% y-o-y, while HPE Aruba Services revenue increased 16% y-o-y.

Hybrid IT revenue was $5.6 billion, down 4% on a y-o-y basis. However, operating margin increased 140 basis points on a y-o-y basis to 11.4%. Specifically, Compute revenue declined by 5% y-o-y. Barring the impact from HPE’s planned exit of some Tier 1 customer related businesses, Compute revenue grew 4% when adjusted for currency volatility. Furthermore, HPE’s higher-margin Value Compute portfolio increased roughly 8% after currency related adjustments, led by robust performance of high-performance compute, hyper-converged, and composable cloud. Likewise, Storage revenue grew 3% year-over-year, mainly due to strength in Nimble, XP, and Entry Storage. On the contrary, HPE Pointnext revenue declined 7% y-o-y.

Financial Services revenue was down 2% y-o-y to $896 million. The business recorded an operating margin of 8.6%.

For the second-quarter of 2019, cash flow from operations was $987 million, an increase of 300% from $247 million in the second-quarter of 2018. Free cash flow for the recent quarter was $402 million, compared with $671 million in the second-quarter of 2018.

For the third quarter, Hewlett Packard Enterprise anticipates GAAP diluted net earnings of between $0.29 and $0.33 per share and non-GAAP diluted net EPS in the range of $0.40 to $0.44 per share.

For the fiscal year 2019, Hewlett Packard Enterprise now anticipates GAAP diluted net earnings in the range of $0.98 to $1.08 per share and non-GAAP diluted net revenues in the range of $1.62 to $1.72 per share, up from prior outlook of $1.56 to $1.66 per share. Analysts presently anticipate third quarter and full-year earnings of $0.42 per share and $1.65 per share, respectively.

The company also reaffirmed free cash flow outlook of between $1.40 billion and $1.60 billion, representing an increase of 35% from last year.

The mixed results and upward revision of FY19 earnings view are expected to keep the stock range bound in the short-term.

Technically, the MACD indicator continues to move around the reading of zero. As a result, we can expect the anticipated stock to remain range bound between 14 and 17.

HPE - technical analysis - 24th May 2019

Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.


Andrew Wright

Prior to founding tradersasset.com in 2014, Andrew worked as a proprietary trader, then as a market maker. As a market maker, he traded options in over 100 stocks, he then began trading currency pairs in 2013. Andrew still actively trades both, and prides himself on educating and informing traders on the benefits of both Binary Options and Forex.

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