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Dell Technologies (DELL) Q3 Earnings Beat, Revenues Up Y/Y

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Dell Technologies (DELL - Free Report) reported third-quarter fiscal 2020 non-GAAP earnings of $1.75 per share that beat the Zacks Consensus Estimate by 15.8%.

Revenues increased 1.2% year over year to $22.93 billion, driven by strong growth in storage, commercial and VMware revenues.

Quarter in Details

Product revenues (76.3% of revenues) declined 0.8% year over year to $17.49 billion. Services revenues (23.4% of revenues) increased 10.3% year over year to $5.36 billion.

Infrastructure Solutions Group (ISG) revenues were down 6.1% year over year to $8.39 billion. The segment accounted for 36.6% of revenues.

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

The year-over-year decline was due to a 16.1% fall in servers and networking revenues. However, storage revenues increased 6.9% year over year to $4.15 billion.

The company witnessed solid adoption of the Dell Technologies Cloud with customer wins in the logistics, transportation, financial, communications and retail sectors. Moreover, VxRail orders surged 82% year over year.

During the quarter, the company announced the availability of Dell EMC PowerOne autonomous infrastructure.

Client Solutions Group (CSG) revenues were $11.41 billion, up 4.6% year over year. The segment accounted for 49.8% of revenues.

Commercial revenues grew 9.4% year over year to $8.33 billion. Notably, the company witnessed double-digit unit and revenue growth in commercial desktops and workstations.

However, consumer revenues were down 6.4% to $3.08 billion.

VMware (VMW - Free Report) revenues were $2.48 billion in the reported quarter, up 11.4% year over year, driven by portfolio strength. Notably, Dell has a majority stake in VMware.

Moreover, revenues from other businesses (Pivotal, Secureworks, RSA, virtustream and Boomi) increased 10% year over year to $644 million.

Operating Details

Non-GAAP gross profit increased 11% year over year to $7.77 billion. Gross margin expanded 300 basis points (bps) from the year-ago quarter to 33.9%.

Adjusted EBITDA increased 17.8% year over year to $2.86 billion. Adjusted EBITDA margin expanded 180 bps year over year to 12.5%.

Non-GAAP operating expenses grew 7.9% year over year to $5.33 billion. Moreover, operating expenses, as a percentage of revenues, increased 140 bps year over year to 23.2%.

ISG operating income climbed 6.5% year over year to $996 million. CSG operating income jumped 65.3% year over year to $739 million.

VMware operating income decreased 6.6% year over year to $717 million.

Non-GAAP operating income was $2.44 billion, up 18.3% from the year-ago quarter. Operating margin expanded 150 bps year over year to 10.7%.

Balance Sheet and Cash Flow

As of Nov 2, 2019, Dell had $9.4 billion in cash and cash equivalents. Long-term debt was $44.73 billion.

The company repaid roughly $1.1 billion of gross debt in the quarter. Notably, Dell has repaid approximately $18 billion of gross debt over the three years following the EMC transaction's completion. The company is on track to repay approximately $5 billion of gross debt in fiscal 2020.

Cash flow from operations was $1.82 billion in the reported quarter compared with $3.28 billion in the previous quarter.

Guidance

For fiscal 2020, Dell expects revenues between $91.8 billion and $92.5 billion. Operating income is expected in the range of $10-$10.2 billion.

Moreover, fiscal 2020 earnings are expected between $7.25 and $7.40 per share.

Zacks Rank & Key Picks
 

Dell currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks worth considering in the same industry are Computer Task Group (CTG - Free Report) and CDW Corporation (CDW - Free Report) , both carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Long-term earnings growth rate for Computer Task Group and CDW is pegged at 15% and 13.1%, respectively.

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