HPE Delivers Q1 Results & Raises FY19 EPS Outlook

Q1 2019 Financial Highlights:

  • Revenue: $7.6 billion in line with guidance
  • Operating Profit: GAAP $456 million, up 100% from the prior-year period; non-GAAP $669 million, up 19% from the prior-year period driven by improved gross margins and cost reductions from HPE Next
  • Earnings Per Share: GAAP $0.13, down 86% from the prior-year period EPS from continuing operations due primarily to one-time, non-cash adjustments related to U.S. tax reform; non-GAAP $0.42, up 31% from the prior-year period and above the previously provided outlook of $0.33 to $0.37 per share
  • Cash Flow from Operations: $382 million, up 169% from $142 million in the prior-year period
  • Free Cash Flow: ($190) million, up $222 million from the prior-year period

FY 2019 Outlook:

  • Earnings Per Share: Raising GAAP diluted net earnings per share outlook to $0.88 to $0.98 and non-GAAP diluted net earnings per share outlook to $1.56 to $1.66
  • Free Cash Flow: Reiterating free cash flow guidance of $1.4 to $1.6 billion

SAN JOSE, Calif. — (BUSINESS WIRE) — February 21, 2019 — Hewlett Packard Enterprise (NYSE: HPE) today announced financial results for its fiscal 2019 first quarter, ended January 31, 2019.

“Today we reported another strong quarter for Hewlett Packard Enterprise as we continue to execute against our strategy of growing in the Intelligent Edge and delivering profitable growth in Hybrid IT,” said Antonio Neri, President and CEO of HPE. “We significantly expanded both gross and operating margins and drove 31% growth in non-GAAP earnings per share. Looking forward, we are confident that HPE’s differentiated, software-defined solutions will continue to gain traction with customers looking to harness the explosion of data, driving accelerated revenue growth starting in Q2.”

First Quarter Fiscal Year 2019

HPE fiscal 2019 first quarter continuing operations financial
performance

                   
      Q1 FY19     Q1 FY18     Y/Y
GAAP net revenue ($B)     $7.6     $7.7     (1.6%)
GAAP operating margin     6.0%     3.0%     3.0 pts.
GAAP net earnings ($B)     $0.2     $1.5     (88.1%)
GAAP diluted net earnings per share     $0.13     $0.92     (85.9%)
Non-GAAP operating margin     8.9%     7.3%     1.6 pts.
Non-GAAP net earnings ($B)     $0.6     $0.5     13.5%
Non-GAAP diluted net earnings per share     $0.42     $0.32     31.3%
Cash flow from operations ($M)     $382     $142     169%
                   

Information about HPE’s use of non-GAAP financial information is provided under “Use of non-GAAP financial information” below.

Financial Summary

First quarter net revenue of $7.6 billion, in-line with guidance, down 2% from the prior-year period, and down 1% when adjusted for currency. First quarter net revenue was up 1% from the prior-year period, excluding Tier-1 server sales.

First quarter GAAP operating profit of $456 million, up 100% from the prior-year period.

First quarter non-GAAP operating profit of $669 million, up 19% from the prior-year period driven by 280 bps of gross margin expansion and cost reductions from HPE Next.

First quarter GAAP diluted net earnings per share (“EPS”) from continuing operations was $0.13, down from GAAP diluted net EPS from continuing operations of $0.92 in the prior-year period primarily due to one-time, non-cash adjustments related to U.S. tax reform.

First quarter non-GAAP diluted net EPS from continuing operations was $0.42, up from non-GAAP diluted net EPS from continuing operations of $0.32 in the prior-year period. First quarter non-GAAP net earnings from continuing operations and non-GAAP diluted net EPS from continuing operations exclude after-tax adjustments of $413 million and $0.29 per diluted share, respectively, primarily related to the impact of U.S. tax reform, tax indemnification adjustments, transformation costs, amortization of intangible assets, acquisition, disposition and other related charges and an adjustment to earnings from equity interests.

First quarter cash flow from operations of $382 million and free cash flow of ($190) million, was up $240 million and $222 million from the prior-year period, respectively.

Segment Results

HPE delivered strong performance in the key areas of the portfolio.

  • Intelligent Edge delivered robust growth in this strategically important segment. Revenue was $686 million, up 5% year over year, with 1.3% operating margin. HPE Aruba Product revenue was up 3% with balanced growth across wired and WLAN. HPE Aruba Services revenue was up 20%.
  • Hybrid IT continued to drive profit growth with revenue of $6.0 billion, down 3% year over year with 11.3% operating margin that was up 200 bps year over year. Compute revenue was down 3%. Excluding the impact from the company’s intentional exit of certain Tier-1 customer segments, Compute revenue grew 3% and HPE’s high-margin Value Compute portfolio grew approximately 20% driven by strength in high-performance compute, hyper-converged and composable. Storage revenue was up 3%, with particular strength in All-Flash Arrays, which grew 20%. HPE Pointnext revenue was down 6%, primarily due to the company’s intentional exit of certain geographies, and a strong book to bill of 110% indicates a strong pipeline of recurring revenue and profits.
  • Financial Services revenue was $919 million, up 3% year over year and up 6% when adjusted for currency, net portfolio assets were down 2% year over year and up 2% when adjusted for currency, and financing volume was down 3% year over year and flat when adjusted for currency. The business delivered an operating margin of 8.4%.

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