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Dell Technologies (DELL) Q2 Earnings & Revenues Top Estimates

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Dell Technologies (DELL - Free Report) reported second-quarter fiscal 2020 non-GAAP earnings of $1.92 per share that beat the Zacks Consensus Estimate by 30.6%. The figure decreased 11% year over year.

Revenues on a non-GAAP basis fell 3% year over year to $23.45 billion. However, the figure beat the consensus mark by 1%.

Product revenues declined 7% year over year to $16.74 billion. However, services revenues increased 10% year over year to $6 billion.

Orders from the government and education end-markets increased 16% and 24% respectively in the quarter. Dell’s top line benefited from strong demand for online learning and work-from-home.
 

Dell Technologies Inc. Price, Consensus and EPS Surprise

Dell Technologies Inc. Price, Consensus and EPS Surprise

Dell Technologies Inc. price-consensus-eps-surprise-chart | Dell Technologies Inc. Quote

Recurring revenues, which includes deferred revenue amortization, utility, and as-a-Service delivered as part of Dell on Demand service, were roughly $6 billion, up 15% year over year.

Quarter in Detail

Infrastructure Solutions Group (“ISG”) revenues were down 5% year over year to $8.21 billion.

This year-over-year drop was due to 5% fall in servers and networking revenues that totaled $4.2 billion. High-value servers built for AI and machine-learning workloads saw mid-single-digit orders growth.

Moreover, storage revenues slid 4% year over year to $4.01 billion.

Client Solutions Group (“CSG”) revenues were $11.20 billion, down 5% year over year.

Commercial revenues declined 11% year over year to $8.04 billion. However, consumer revenues were up 18% to $3.16 billion.

In consumer business, Dell witnessed strong double-digit growth across all consumer notebooks and gaming systems, driven by its premium XPS and Alienware brands, with orders up 25%. Notebook orders grew 8% for this Zacks Rank #3 (Hold) company. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Markedly, Dell was ranked third by both Gartner and IDC among all PC vendors, trailing Lenovo (LNVGY - Free Report) and HP (HPQ - Free Report) in their latest second-quarter report. (Read more: PC Sales Soar in Q2 on Increased Demand, Improved Supply Chain)

VMware (VMW - Free Report) revenues were $2.91 billion in the reported quarter, up 10% year over year, driven by portfolio strength. Notably, Dell has a majority stake in VMware.

Operating Details

Non-GAAP gross profit decreased 5% year over year to $7.63 billion. Gross margin contracted 100 basis points (bps) year over year to 33%.

Adjusted EBITDA fell 2% year over year to $3.10 billion. Adjusted EBITDA margin expanded 100 bps year over year to 14%.

Non-GAAP operating income was $2.62 billion, down 5% from the year-ago quarter. Operating margin contracted 100 bps year over year to 11%.

ISG operating income fell 7% year over year to $973 million. CSG operating income decreased 27% year over year to $715 million.

VMware’s operating income increased 19% year over year to $894 million.

Balance Sheet and Cash Flow

As of Jul 31, 2020, Dell had $11.22 billion in cash and cash equivalents. The company had undrawn revolver capacity of $5.9 billion.

Debt was $54.5 billion as of Jul 31, 2020. The company paid approximately $3.5 billion of total debt during the second quarter, including $2.2 billion of core debt and $1.25 billion of VMware debt.

Cash flow from operations was $3.33 billion in the reported quarter up 1.6% year over year.

Outlook

Dell expects third-quarter revenues to be seasonally lower, which has typically been flat to down 2% sequentially in previous years.

Dell plans to reduce core debt by approximately $5.5 billion in fiscal 2021.

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