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Hewlett Packard (HPE) to Post Q3 Earnings: What to Expect?

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Hewlett Packard Enterprise Company (HPE - Free Report) is slated to report third-quarter fiscal 2021 results on Sep 2.

For third-quarter fiscal 2021, Hewlett Packard projects non-GAAP earnings between 38 cents and 44 cents per share. The Zacks Consensus Estimate for earnings is currently pegged at 42 cents, indicating a year-over-year jump of 31.3%.

The consensus mark for quarterly revenues is currently pinned at $6.93 billion, suggesting an increase of 1.6% from the year-ago period.

Notably, the company’s earnings surpassed the Zacks Consensus Estimate in all of the trailing four quarters, the average surprise being 19.1%.

In the last reported quarter, Hewlett Packard delivered non-GAAP earnings of 46 cents per share, which beat the Zacks Consensus Estimate by 9.5%. Also, the reported figure came in higher than the prior-year quarter’s earnings of 27 cents per share.

Net revenues of $6.7 billion were up 11% on a year-over-year basis and topped the Zacks Consensus Estimate by 1.5%.

Let’s see how things have shaped up prior to the upcoming announcement.

Factors to Consider

Hewlett Packard’s fiscal third-quarter performance is likely to have benefited from the increased investments in data-center infrastructure, modernization of business applications and IT operations. Additionally, the projected year-over-year rise is likely to reflect an improvement from the pandemic-hit year-ago quarter’s comparison.

The company’s fiscal third-quarter performance is also likely to have gained from the ongoing digital transformation and higher demand for cloud networking, owing to the pandemic-induced remote working wave.

The company’s top line is likely to have gained from strong momentum in the as-a-service platform and significant contributions from growth businesses, such as HPC & MCS and Intelligent Edge. Moreover, higher demand for the company’s edge-to-cloud and software-as-a-service data storage solutions in the pandemic-induced remote-working environment is anticipated to have been a major growth driver.

Furthermore, solid adoption of Aruba ESP (Edge Services Platform), which provides edge-to-cloud connectivity as-a-service, and its cloud services arm, HPE GreenLake, is expected to have driven revenue growth. Notably, during its second-quarter fiscal 2021 earnings conference call, Hewlett Packard had stated that the Aruba Edge Service platform is adding 150 new customers every day, and the total number of customers has crossed the 100,000 mark.

A gradual recovery of supply chains is likely to have resulted in reduced backlogs and fueled growth for the company’s HPC business. Markedly, the company had noted that there were no backlogs during the previous quarter. The trend is likely to have continued in the to-be-reported quarter as well, along with improved gross margins in the company’s compute and storage business segments.

Further, the company completed the acquisition of Silver Peak, an SD-WAN (Software-Defined Wide Area Network) leader, in fourth-quarter fiscal 2020. This acquisition is likely to have added enhancements to the Aruba ESP cloud solutions and driven expansion of its enterprise clientele during the fiscal third quarter. Notably, Silver Peak contributed about 500 basis points toward growth of the Intelligent Edge revenues in second-quarter fiscal 2021.

Additionally, significant contributions from the company’s solid partner base, which includes Nutanix, NVIDIA (NVDA - Free Report) and VMware, are likely to have aided the top line during the quarter under review.

The company’s gross margin is likely to have further improved during the third quarter, mainly driven by a strong pricing discipline, benefits from positive mix shift toward high-margin software-rich businesses, cost takeouts and automation. Savings from its cost-optimization plan and continued focus on improving productivity is anticipated to have boosted the company’s operating margin in the quarter under review.

Nonetheless, a persistent decline in the tier-1 server shipments might have been an overhang on the company during the to-be-reported quarter. Foreign-exchange headwinds are expected to have been an added concern.

Furthermore, more and more organizations continue shifting to cloud computing due to their maintenance-free and cost-effective structure compared with standalone servers. This trend might have negatively impacted Hewlett Packard’s financial performance during the quarter in discussion.

What Our Model Says

Our proven model does not predict an earnings beat for Hewlett Packard this time around. The combination of a positive Earnings ESP, and Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold), increases the chances of an earnings beat. But that’s not the case here. You can uncover the best stocks to buy or sell, before they’re reported, with our Earnings ESP Filter.

Hewlett Packard currently carries a Zacks Rank of 3 (Hold) and has an Earnings ESP of 0.00%.

Stocks With Favorable Combinations

Here are some companies, which, per our model, have the right combination of elements to post an earnings beat this quarter:

Lululemon Athletica (LULU - Free Report) has an Earnings ESP of +3.06 and currently carries a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

ABM Industries (ABM - Free Report) has an Earnings ESP of +0.84% and holds a Zacks Rank of 2, at present.