Hewlett Packard Enterprise (HPE Quick QuoteHPE - Free Report) reported first-quarter fiscal 2025 non-GAAP earnings of 49 cents per share, which missed the Zacks Consensus Estimate by 2%. The figure rose 2% year over year.

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HPE’s revenues increased 16.3% year over year to $7.85 billion and surpassed the Zacks Consensus Estimate by 0.55%. The top line grew on the back of Server, Hybrid Cloud and Financial services segments, driven by increased sales in artificial intelligence and GreenLake.

Following its mixed fiscal first-quarter results, HPE released a weak outlook for the second quarter of fiscal 2025 and full-year fiscal 2025 earnings. The weak earnings guidance is unlikely to revive HPE stock, which has already declined 1.2% in the past year.

HPE's Segment-Wise Performance

Hewlett Packard Enterprise’s server segment sales soared 29% (up 30% at cc) year over year and declined 8.4% sequentially to $4.29 billion, mainly due to strong demand for its AI servers as well as growth in server systems. The division reported an operating profit margin of 8.1%, which decreased 330 basis points (bps) from the year-ago quarter and 350 bps from the previous quarter.

Revenues in the Intelligent Edge division fell 4.6% (down 4% at cc) year over year and rose 2% sequentially to $1.146 billion during the quarter. Hewlett Packard Enterprise stated that revenues in this segment declined due to the normalization of post-pandemic backlog orders, which had previously boosted revenues. The division’s operating profit margin of 27.4% contracted 200 bps from the year-ago quarter but expanded 300 bps sequentially.

In the first quarter of fiscal 2024, HPE restructured its business by introducing the hybrid cloud business, which comprises storage and part of the server business that accounts for HPE GreenLake as well. The hybrid cloud division’s sales increased 10.4% (up 11% at cc) year over year but declined 12.6% sequentially to $1.41 billion. The company stated that its Hybrid Cloud revenues grew on the back of Private Cloud and Alletra Storage MP. The division reported an operating profit margin of 7%, which increased 300 bps from the year-ago quarter but contracted 80 bps sequentially. The year-over-year increase in operating profit margin was mainly due to controlled operating expenses.

The Financial service segment’s revenues of $873 million remained flat (up 1.6% in cc) year over year while declining 2% sequentially. The segment’s operating margin of 9.4% expanded 90 bps year over year and 20 bps sequentially. Net portfolio assets of $13 billion decreased 2% year over year (up 1% in cc). Corporate Investments & Other revenues were $197 million, down 17.2% year over year and 24.8% sequentially.

Operating Results of HPE

The non-GAAP gross profit was $2.31 billion, down 5.6% year over year and 11.6% sequentially. The non-GAAP gross margin contracted 680 bps on a year-over-year basis and 150 bps on a quarter-over-quarter basis to 29.4%. The contraction in the gross margin was primarily due to a lower mix of the high-margin Intelligent Edge revenues.

Hewlett Packard Enterprise’s non-GAAP operating profit increased 0.6% year over year and contracted 16.8% sequentially to $780 million. The non-GAAP operating margin contracted 160 bps year over year and expanded 120 bps sequentially to 9.9%.

HPE’s Balance Sheet and Cash Flow

Hewlett Packard Enterprise ended the fiscal first quarter with $13.43 billion in cash and cash equivalents compared with $14.84 billion at the end of the previous quarter.

In the fiscal first quarter, HPE reported a negative operating cash flow of $390 million and a negative free cash flow of $877 million.

HPE returned $223 million to shareholders in the first quarter of fiscal 2025 through dividends and share repurchases.

Guidance for FY25 and Q2

Hewlett Packard Enterprise initiated guidance for the second quarter and fiscal 2025. For the second quarter of fiscal 2025, the company forecasts to generate revenues in the range of $7.2-$7.6 billion. The company estimates GAAP and non-GAAP net earnings per share in the range of 8-14 cents and 28-34 cents (mid-point 31 cents), respectively. The Zacks Consensus Estimate for first-quarter fiscal 2025 revenues and non-GAAP earnings is pegged at $7.80 billion and 47 cents per share, respectively.

For fiscal 2025, HPE forecasts to generate year-over-year revenue growth of 7-11% in constant currency. The company estimates GAAP and non-GAAP net earnings per share in the range of $1.15-$1.35 and $1.70-$1.90 (mid-point $1.80), respectively. The Zacks Consensus Estimate for fiscal 2025 revenues and non-GAAP earnings is pegged at $32.7 billion and $2.10 per share, respectively.

Zacks Rank and Stocks to Consider

Currently, HPE carries a Zacks Rank #3 (Hold).

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