A month has gone by since the last earnings report for Hewlett Packard Enterprise (HPE). Shares have lost about 7.2% in that time frame, outperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is HP Enterprise due for a breakout? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Hewlett Packard Q4 Earnings Meet Estimates, Sales Top
Hewlett Packard Enterprise reported fourth-quarter fiscal 2022 non-GAAP earnings of 57 cents per share, which matched the Zacks Consensus Estimate. The reported figure was 10% higher than the year-ago quarter’s earnings of 52 cents per share.
Revenues of $7.9 billion increased 7% from the prior-year quarter and surpassed the consensus mark of $7.42 billion. The annualized revenue run-rate was up 17% year over year to $936 million.
Hewlett Packard continued to witness the increased demand for its products and services during the quarter, primarily driven by the accelerated digital transformation amid the hybrid working trend. Despite supply-chain constraints and high inflationary pressure, the company witnessed an increase in earnings and sales.
Quarterly Details
Segment-wise, High-Performance Compute & Artificial Intelligence revenues decreased 14% year over year to $862 million. The company stated that this segment’s market share was 37% at the end of the quarter and included four of the global top 10 supercomputers and three of the top five.
The Compute division’s sales soared 16% year over year to $3.7 billion. The division witnessed 530 basis points (bps) operating profit margin expansion to 14.7%, driven by strategic pricing actions and a better product mix shift that offset inflated input costs.
Revenues in the Intelligent Edge division rose 18% year over year to $965 million during the quarter, primarily driven by strong customer demand. Revenues from Aruba Services witnessed single-digit growth, while Intelligent Edge as-a-Service saw an improvement of 70%.
Financial Service revenues were flat at $857 million. Net portfolio assets dipped 6% to roughly $12.5 billion.
Revenues from the Storage business were up 4% year over year to $1.3 billion. Corporate Investments & Other revenues stood at $303 million, down 14% year over year.
Operating Results
The non-GAAP gross margin of 33.1% was up 10 bps on a year-over-year basis while contracting 160 bps sequentially. The year-over-year increase reflects that the gross margin remained resilient despite ongoing supply-chain constraints and an inflationary environment.
Hewlett Packard’s non-GAAP operating profit margin increased 180 bps year over year to 11.5% and 100 bps sequentially. The company continued to save from the cost optimization plan and invest in high-growth, margin-rich portfolios in the fourth quarter of fiscal 2022.
Balance Sheet and Cash Flow
Hewlett Packard ended the fiscal fourth quarter with $4.16 billion in cash and cash equivalents compared with $3.76 billion at the end of the previous quarter.
In the fiscal fourth quarter, Hewlett Packard generated $3 billion in cash for operational activities and free cash flow of $2 billion. In fiscal 2022, the company generated $4.6 billion in cash for operational activities and free cash flow of $1.8 billion.
Hewlett Packard returned $282 million to shareholders through share repurchases and dividends in the reported quarter. In fiscal 2022, it returned $1.1 billion in the form of dividends and share buybacks, representing 60% of its free cash flow.
Guidance
Hewlett Packard initiated guidance for the first quarter and fiscal 2023. For fiscal 2023, the company estimates GAAP and non-GAAP earnings per share in the range of $1.38-$1.46 and $1.96-$2.04, respectively. HPE anticipates free cash flow in the band of $1.9-$2.1 billion and intends to repurchase at least $500 million worth of its common stocks.
For the first quarter of fiscal 2023, Hewlett Packard expects revenues between $7.2 billion and $7.6 billion. It projects GAAP and non-GAAP earnings per share in the range of 32-40 cents and 50-58 cents, respectively.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended upward during the past month.
The consensus estimate has shifted 15.06% due to these changes.
VGM Scores
At this time, HP Enterprise has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren’t focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, HP 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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