Hewlett Packard Enterprise Raised Commitment to Shareholders, Stocks Soar | Financial Buzz

Hewlett Packard Enterprise Raised Commitment to Shareholders, Stocks Soar

Hewlett Packard Enterprise released first quarter 2016 earnings results during after-hours on Thursday. Shares jump more than 14% on strong earning and forecast.

HPE Five-Month Stock Price


Source: Nasdaq

Financials

For the Q1 2016, the company had non-GAAP diluted net earnings per share of $0.41, meeting the high end of the former outlook of $0.37 to $0.41 and beating consensus estimate of $0.39. The GAAP diluted earnings per share was $0.15, down from $0.30 in the same period last year but beats previous outlook.  Net revenue for the quarter was $12.7 billion, 4% increase year-over-year on a constant currency basis and a drop of 3% with the forex influence. 

GAAP operating margin for Q1 was 3%, improving from the 1% in the previous quarter and down 3% year-over-year. Free cash flow was negative $831 million, a decline of 70% year-over-year but “reflects the estimated HPE contribution to the combined HP company free cash flow last year.” The CFO of HPE also explained that Q1 has usually the lowest cash flow quarter “due primarily to earnings seasonality in ES and Software as well as normal annual bonus compensation payments.”

Business Performance

As a result of a spin-off from the Hewlett Packard Company (NYSE: HPQ) last November, HPE operates with four segments: Enterprise Group, Enterprise Services, Software and Financial Services. Enterprise Group, which includes servers, technology services, storage and networking, had the most impressive year-over-year growth of 7% in revenue in constant currency and 1% with the forex impact. The strong performance was benefited from a number of important deals such as helping Rogers Communications transform IT infrastructure. Although the revenue of Enterprise Services dropped 6%, it had a slight growth in constant currency and the segment is building a more diversified customer base. Software segment experienced slight improvement of 1% in constant currency and 10% decline with the forex impact. Big Data and Security had strong performance while ADM/ITOM business showed weakness. Financial Services segment grew 3% in constant currency.    

Geographically, Asia Pacific experienced the best year-over-year growth of 9% in constant currency thanks to “strength in servers and record China networking revenue.” Driven by “balanced growth across EG hardware”, EMEA had growth of 4% in constant currency. The company faced some challenges in the Americas, “particularly in U.S. hardware as macro uncertainty caused a slowdown in global accounts funding.”

Outlook

Looking forward, the company expects non-GAAP diluted EPS to be between $0.13 and $0.17 for the second quarter. For the fiscal year 2016, the company estimates the non-GAAP diluted net EPS to be in the range of $1.85 to $1.95. In Q1, the company has paid $1.2 billion for share repurchases and $96 million for dividend. Free cash flow outlook for the full year remains at $2 billion to $2.2 billion.

To-date, we have already returned over 60% of our free cash flow outlook to shareholders. And now we are raising our commitment and expect to return at least 100% of our free cash flow outlook to shareholders in fiscal year 2016,” said Timothy Stonesifer, CFO of Hewlett Packard Enterprise.

In answering a question about acquisition strategy, the CEO Margaret Whitman said that from an innovation perspective, the company would take organic innovation as the first choice and mentioned 3PAR as an example. “The second choice would be acquisitions that look like 3PAR, 3Com and Aruba,” said the CEO, “they are additional complementary technology that goes through our excellent distribution system.”