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Hewlett Packard (HPE) Q2 Earnings & Revenues Miss Estimates

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Hewlett Packard Enterprise Company (HPE - Free Report) delivered second-quarter fiscal 2020 non-GAAP earnings of 22 cents per share, which missed the Zacks Consensus Estimate by 29%. The reported figure also came in lower than the year-ago number of 42 cents.

Revenues of $6 billion were down 16% from the prior-year quarter and 15% in constant currency, primarily due to supply chain constraints and delays in customer acceptance, which resulted in high levels of backlog, particularly in Compute, HPC & MCS, and Storage. The figure missed the Zacks Consensus Estimate by 7.2%.

Additionally, the company withdrew its third quarter and fiscal 2020 outlook due to coronavirus-led uncertainty.

HP Inc. Price, Consensus and EPS Surprise

HP Inc. Price, Consensus and EPS Surprise

HP Inc. price-consensus-eps-surprise-chart | HP Inc. Quote

Quarterly Details

Segment-wise, the company registered sales contraction across all its businesses. The Compute division’s sales decreased 19% year over year to $2.6 billion, thanks to component-supply disruptions.

Apart from the Compute segment, HPE registered sales declines across its Storage and Financial Services businesses. Revenues from Storage business fell 16% year on year to $1.1 billion. However, Nimble Services revenues grew 20% year over year, which was a breather. Financial Service revenues were down 5% year over year to $833 million.

Moreover, year-over-year revenue decline across the HPC & MCS, Intelligent Edge, and A&PS segments also added to the company’s woes. HPC & MCS revenues declined 18% year over year to $589 million. Revenues at the Intelligent Edge division fell 2% to $665 million during the quarter. A&PS division’s sales declined 8% year over year to $297 million.

Operating Results

Non-GAAP gross margin of 32% contracted 20 basis points (bps) on a year-over-year basis.

HPE’s non-GAAP operating profit fell 42.4% year over year to $365 million. Non-GAAP operating margin contracted 280 bps, year over year, to 6.1%, primarily due to high transformation costs.

Balance Sheet and Cash Flow

The company ended the fiscal second quarter with $5.13 billion in cash and cash equivalents compared with the $3.17 billion recorded at the end of first quarter.

During the reported period, Hewlett Packard Enterprise generated $100 million of cash from operational activities. Free cash flow was negative $402 million in the quarter.

Additionally, the company repurchased shares worth $151 million and paid out $154 million as dividends.

Moreover, the company also approved a cost optimization plan to be implemented through fiscal year 2022, including changes to the company’s workforce, real estate model and business process improvements. Hewlett Packard expects at least $1 billion in savings by fiscal year 2022-end. In order to achieve this level of cost savings, the company plans cash funding payments between $1 billion and $1.3 billion over the next three years.

Zacks Rank & Stocks to Consider

Hewlett Packard currently carries a Zacks Rank #4 (Sell).

Coupa Software (COUP - Free Report) , Workday (WDAY - Free Report) and Okta (OKTA - Free Report) are some better-ranked stocks in the broader computer and technology sector. All the three stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Workday, Okta and Coupa Software are set to report quarterly results on May 27, May 28 and Jun 8, respectively.

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