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Hewlett Packard (HPE) Q4 Earnings Beat, Revenues Miss Mark

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Hewlett Packard Enterprise Company (HPE - Free Report) delivered fourth-quarter fiscal 2019 non-GAAP earnings of 49 cents per share, beating the Zacks Consensus Estimate by 6.52% and also the year-ago quarterly figure by 14%.

However, net revenues of $7.23 billion declined 9% on a year-over-year basis and also missed the Zacks Consensus Estimate of $7.46 billion. In constant currency (cc), revenues also fell 7% year over year.

The company’s strategic decision to exit the lower margin Tier 1 server business coupled with certain macroeconomic factors impacted revenues. Weak server sales and soft storage hardware revenues are a dampener as well.

Uneven demand due to the ongoing trade tensions between the United States and China is a major overhang. Longer sales cycle for large enterprise deals is a headwind too.

However, robust growth in high-performance compute, Hyperconverged Infrastructure, Composable Cloud and HPE GreenLake orders is a key driver.

Quarterly Details

Segment wise, Hybrid IT revenues of $5.7 billion decreased 11% year over year (down 9% at cc).

Coming to Hybrid IT Products, Compute Value revenues dropped 13% (down 12% at cc). The figure also declined 10% excluding the impact of the company’s strategic exit from certain Tier-1 customer segments.

At cc, Hyper-converged infrastructure grew 14% while Composable cloud rose 21%.

However, storage revenues were down 12% (10% at cc).

Also, HPE Pointnext revenues declined 5% (4% at cc) from the year-ago quarter. Additionally, HPE Pointnext operational services orders including Nimble slipped 1% (flat at cc).

Meanwhile, HPE Greenlake orders soared 72% year over year.

Although revenues from the Intelligent Edge were down 6% (5% at cc) to $723 million, Aruba Services revenues were up 17% (17% at cc).

Revenues from Aruba Product deteriorated 9% (7% at cc).

Further, Hewlett Packard Enterprise’s Financial Services segment revenues declined 6% (5% at cc) to $878 million. But net portfolio assets inched up 1% year over year at cc. However, financing volumes contracted 9% year over year (7% at cc).

Geographically, Hewlett Packard Enterprise’s revenues in the Americas (40% of revenues) decreased 10% at cc. Also, EMEA (36% of revenues) revenues softened 8% at cc and APJ revenues (24% of revenues) fell 4% at cc.

Operating Results

Hewlett Packard Enterprise’s gross margin of 33.3% expanded 260 basis points (bps) on a year-over-year basis, aided by a favorable portfolio mix, HPE Next initiatives and commodity pricing tailwinds.

Hybrid IT segment operating margin expanded 250 bps to 13.8%. Moreover, Financial Services operating margin grew 80 bps to 8.4%. However, Intelligent Edge operating margin shrank 710 bps to 4.9%.

Balance Sheet and Cash Flow

The company ended the fourth quarter of fiscal 2019 with $3.75 billion in cash and cash equivalents compared with $3.69 billion at the end of the previous quarter.

During the quarter under review, Hewlett Packard Enterprise generated $1.4 billion in cash flow from operational activities compared with $1.2 billion in the prior quarter. The company’s free cash flow was $878 million.

Additionally, the company repurchased shares worth $284 million and paid out $147 million as dividends.

Guidance

For fiscal 2020, Hewlett Packard Enterprise expects non-GAAP earnings of $1.78-$1.94 per share.

Management reiterated its free cash flow outlook of $1.9-$2.1 billion.

For first-quarter fiscal 2020, Hewlett Packard Enterprise forecasts non-GAAP earnings between 42 cents and 46 cents.

Zacks Rank & Other Stocks to Consider

Hewlett Packard Enterprise currently has a Zacks Rank #2 (Buy). A few other top-ranked stocks in the broader technology sector are Alteryx, Inc. (AYX - Free Report) , Fortinet, Inc. (FTNT - Free Report) and CommVault Systems, Inc. (CVLT - Free Report) , each flaunting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Alteryx, Fortinet and CommVault Systems is currently estimated at 39.9%, 14% and 10%, respectively.

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Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

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