It has been about a month since the last earnings report for Hewlett Packard Enterprise (HPE Quick QuoteHPE - Free Report) . Shares have lost about 9.3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is HP Enterprise due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Hewlett Packard Tops Q2 Earnings & Revenue Estimates

Hewlett Packard Enterprise Company delivered second-quarter fiscal 2021 non-GAAP earnings of 46 cents per share, which surpassed the Zacks Consensus Estimate by 9.5% as well as the guided range of 38-44 cents. The reported figure also came in higher than the year-ago number of 27 cents.

Revenues of $6.7 billion were up 11% from the prior-year quarter. Moreover, the reported figure beat the Zacks Consensus Estimate of $6.6 billion. Further, the annualized revenue run-rate (ARR) was up 30% year over year to $678 million.

Hewlett Packard Enterprise’s quarterly results mainly benefited from the accelerated digital transformation amid the COVID-led work-from-home and online learning wave.

Also, growing traction of its cloud-native Aruba Edge Services platform boosted the company’s quarterly results. The company noted that the platform is adding 150 new customers every day and the total number of customers crossed the 100,000 mark.

Quarterly Details

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

Total as-a-service orders rose 41% year over year, fueled by solid performance in North America and Central Europe. Notably, the Aruba Central SaaS platform witnessed triple-digit growth year over year.

Revenues from the Storage business were up 5% year over year to $1.1 billion. Nimble grew 17% from the prior-year quarter. Moreover, All Flash Array Storage increased 20% year over year, driven by solid adoption of Primera All Flash.

HPC & MCS revenues increased 13% year on year to $685 million, primarily due to more customer acceptance.

Revenues in the Intelligent Edge division rose 20% year over year to $799 million during the quarter mainly driven by strong customer demand. Further, this was the second full quarter following Hewlett Packard’s acquisition of Silver Peak. Notably, Silver Peak contributed about 500 basis points toward the growth of Intelligent Edge revenues.

Financial Service revenues were up 1% year over year to $839 million. The Compute division’s sales increased 12% year on year to $3 billion.

Operating Results

Non-GAAP gross margin of 34.3% expanded 210 basis points (bps) on a year-over-year basis and 60 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 300 bps year over year to 10.2%. Savings from 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 second quarter with $4.63 billion in cash and cash equivalents compared with $4.17 billion recorded at the end of the previous quarter.

During the reported period, Hewlett Packard generated operating and free cash flows of $822 million and $368 million, respectively. During the first half of fiscal 2021, the company generated operating and free cash flows of $1.79 billion and $931 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.

The company declared that a regular cash dividend of $0.12 per share will be paid out on Jul 7, 2021.

Raises Fiscal 2021 Outlook

Buoyed by stronger-than-expected second-quarter performance, Hewlett Packard Enterprise raised its fiscal 2021 non-GAAP earnings outlook to $1.82-$1.94 per share from $1.70-$1.88 forecast earlier. It also increased the free cash flow guidance range to $1.2-$1.5 billion from $1.1-$1.4 billion projected previously.

For third-quarter fiscal 2021, Hewlett Packard expects non-GAAP earnings between 38 cents and 44 cents per share.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted 56.76% due to these changes.

VGM Scores

At this time, HP Enterprise has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, HP Enterprise has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.