It has been about a month since the last earnings report for Hewlett Packard Enterprise (HPE Quick QuoteHPE - Free Report) . Shares have added about 1.7% in that time frame, underperforming the S&P 500.

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

Hewlett Packard Q1 Earnings Beat, Revenues Miss Estimates

Hewlett Packard Enterprise Company delivered first-quarter fiscal 2022 non-GAAP earnings of 53 cents per share, which surpassed the Zacks Consensus Estimate by 15.2% as well as management’s guidance of 42-50 cents. The reported figure was a penny higher than the year-ago quarter’s earnings of 52 cents per share.

Revenues of $7 billion increased 2% from the prior-year quarter but missed the consensus mark of $7.02 billion. Annualized revenue run-rate (“ARR”) was up 23% year over year to $798 million.

Hewlett Packard continued to witness increased demand for its products and services during the quarter, mainly driven by the accelerated digital transformation amid the remote working trend. However, supply-chain constraints hurt its sales growth.

Quarterly Details

Segment-wise, High Performance Compute & Artificial Intelligence (“HPC & AI”) revenues increased 4% year over year to $790 million. The company revealed that the ongoing component-supply constraints coupled with a delayed response from customers affected the division’s sales growth.

The Compute division’s sales increased 1% year on year to $3 billion. The division witnessed 240 basis points (bps) operating profit margin expansion to 13.8%, driven by strategic pricing actions which offset inflated input costs.

Revenues in the Intelligent Edge division rose 11% year over year to $901 million during the quarter, primarily driven by strong customer demand. Revenues from both Aruba Services and Intelligent Edge as-a-Service witnessed double-digit growth.

Financial Service revenues were down 2% year over year to $842 million. Net portfolio assets dipped 3% to roughly $13 billion.

Revenues from the Storage business were down 3% year over year to $1.2 billion, primarily driven by supply chain disruptions in HPE IP solutions.

Corporate Investments & Other revenues stood at $325 million, up 1% year over year.

Operating Results

Non-GAAP gross margin of 33.9% expanded 20 bps on a year-over-year basis and 90 bps sequentially. The year-over-year improvement in gross margin was mainly driven by a strong pricing discipline, benefits from a positive mix shift toward high-margin software-rich businesses, cost takeouts and automation.

Hewlett Packard’s non-GAAP operating profit margin decreased 30 bps year over year to 11% but increased 130 bps sequentially. The company continued to save from the cost optimization plan and invest in high growth, margin-rich portfolios during the first quarter of fiscal 2022.

Balance Sheet and Cash Flow

Hewlett Packard ended the fiscal first quarter with $3.86 billion in cash and cash equivalents compared with $4 billion at the end of the previous quarter.

During the fiscal first quarter, Hewlett Packard used $76 million of cash for operational activities and generated a negative free cash flow of $577 million. Free cash flow reflected normal seasonality and certain inventory actions taken to keep pace with the growing demand of customers.

Hewlett Packard returned $284 million to shareholders through share repurchases and dividends in the reported quarter. The company declared a regular cash dividend of 12 cents per share payable on Apr 8, 2022, to shareholders of record as of Mar 11, 2022.

Guidance

Hewlett Packard raised guidance for fiscal 2022 non-GAAP earnings. The company now forecasts the figure in the range of $2.03-$2.17 per share compared with the previously guided range of $1.96-$2.10 per share.

However, HPE still anticipates free cash flow in the band of $1.8 billion to $2 billion.

For the second quarter of fiscal 2022, Hewlett Packard expects non-GAAP earnings between 41 cents and 49 cents per share.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month.

The consensus estimate has shifted 6.52% due to these changes.

VGM Scores

Currently, HP Enterprise has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

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

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise HP Enterprise has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.