It has been about a month since the last earnings report for Hewlett Packard Enterprise (HPE). Shares have added about 5.7% in that time frame, outperforming the S&P 500.
But investors have to be wondering, will the recent positive trend continue leading up to its next earnings release, or is Hewlett Packard 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 Beats on Q3 Earnings and Revenues
Hewlett Packard Enterprise reported better-than-expected results for the third quarter of fiscal 2025. The company’s non-GAAP earnings of 44 cents per share beat the Zacks Consensus Estimate by 2.3% but declined 12% year over year.
HPE’s revenues increased 19% year over year to $9.1 billion and surpassed the Zacks Consensus Estimate by 4.1%. The top line grew on the back of Server, Hybrid Cloud and Financial services segments, driven by increased sales in artificial intelligence and GreenLake.
HPE's Segment-Wise Performance
Hewlett Packard Enterprise’s Server segment sales increased 16% (up 16% at cc) year over year and rose 21% sequentially to $4.94 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 6.4%, which decreased 440 basis points (bps) from the year-ago quarter but increased 50 bps from the previous quarter.
Revenues in the Networking division (previously known as Intelligent Edge) increased 54% (up 54% at cc) year over year and rose 48% sequentially to $1.73 billion during the quarter. The division’s operating profit margin of 20.8% contracted 160 bps from the year-ago quarter and 280 bps sequentially.
The Hybrid Cloud division’s sales increased 12% (up 11% at cc) year over year and rose 1% sequentially to $1.48 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 5.9%, which increased 70 bps from the year-ago quarter and expanded 50 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 $886 million increased 1% (down 1% in cc) year over year and remained flat sequentially. The segment’s operating margin of 9.9% expanded 90 bps year over year but contracted 50 bps sequentially. Net portfolio assets of $13.2 billion increased 0.7% year over year (down 1% in cc). Corporate Investments & Other revenues were $194 million, down 26% year over year and remained flat sequentially.
Operating Results of HPE
The non-GAAP gross profit was $2.73 billion, up 11.5% year over year and 21.7% sequentially. The non-GAAP gross margin contracted 190 bps on a year-over-year basis and expanded 50 bps on a quarter-over-quarter basis to 29.9%.
Hewlett Packard Enterprise’s non-GAAP operating profit increased 0.8% year over year and 26.8% sequentially to $777 million. The non-GAAP operating margin contracted 150 bps year over year but expanded 50 bps sequentially to 8.5%.
HPE’s Balance Sheet and Cash Flow
Hewlett Packard Enterprise ended the fiscal third quarter with $457 million in cash and cash equivalents compared with $11.67 billion at the end of the previous quarter.
In the fiscal third quarter, HPE generated cash worth $1.3 billion from operational activities and free cash flow of $790 million. In the first three quarters of fiscal 2025, it generated cash worth $454 million from operational activities and had a negative free cash flow of $934 million.
HPE returned $171 million to its shareholders in the third quarter of fiscal 2025 through dividends and share repurchases. In the first three quarters of fiscal 2025, it returned $615 million to shareholders through share buybacks and dividend payments.
Guidance for FY25 and Q4
Hewlett Packard Enterprise initiated guidance for the fiscal fourth quarter and updated guidance for fiscal 2025. For the fourth quarter of fiscal 2025, the company forecasts to generate revenues in the range of $9.7-$10.1 billion. The company estimates GAAP and non-GAAP net earnings per share in the range of 50-54 cents and 56-60 cents, respectively.
For fiscal 2025, HPE forecasts to generate year-over-year revenue growth of 14-16%, up from prior guidance of 7-9%, in constant currency. The company estimates GAAP net earnings per share of 42-46 cents, up from 30-42 cents. HPE estimates non-GAAP net earnings per share of $1.88-$1.92, up from $1.78-$1.90.
How Have Estimates Been Moving Since Then?
Since the earnings release, investors have witnessed a flat trend in estimates review.
The consensus estimate has shifted -7.01% due to these changes.
VGM Scores
Currently, Hewlett Packard Enterprise has a poor Growth Score of F, a score with the same score on the momentum front. However, the stock was allocated a score of B on the value side, putting it in the second quintile for value investors.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Hewlett Packard Enterprise has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Hewlett Packard Enterprise Company (HPE): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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