10-QPeriod: Q3 FY2018

Hewlett Packard Enterprise Co Quarterly Report for Q3 Ended Jul 31, 2018

Filed September 4, 2018For Securities:HPEHPE-PC

Summary

Hewlett Packard Enterprise (HPE) reported strong top-line growth in the third quarter of fiscal year 2018, with total net revenue increasing by 3.5% year-over-year to $7.76 billion. This growth was driven by a 2.7% increase in Hybrid IT revenue and a significant 10.4% rise in Intelligent Edge revenue, indicating positive momentum in key business segments. The company also demonstrated improved profitability, with net earnings from continuing operations rising to $452 million, or $0.29 per diluted share, compared to $285 million, or $0.17 per diluted share, in the prior year's quarter. This improvement was supported by a higher gross margin and increased operating leverage. The nine-month period showed similar positive trends, with net revenue up 8.0% to $22.9 billion and net earnings from continuing operations reaching $2.78 billion. The company's strategic initiatives, including the HPE Next program, appear to be contributing to operational efficiencies and a focus on higher-margin solutions. Despite a decrease in cash and cash equivalents primarily due to share repurchases and debt payments, the company's liquidity position remains robust, supported by ongoing operational cash flows.

Financial Highlights

49 data points
Beta

Revenue

$7.76B

30.5% Gross Margin

Net Income

$451.00M

5.8% Net Margin

EPS (Diluted)

$0.29

Total Assets

$57.51B

Cash & Equivalents

$5.19B

Free Cash Flow

$1.25B

Financial Statements
Beta
Revenue$7.76B
Cost of Revenue$5.40B
Gross Profit$2.37B
R&D Expenses$435.00M
SG&A Expenses$1.22B
Operating Expenses$7.27B
Operating Income$490.00M
Net Income$451.00M
EPS (Basic)$0.30
EPS (Diluted)$0.29
Shares Outstanding (Basic)1.51B
Shares Outstanding (Diluted)1.53B

Key Highlights

  • 1Total net revenue increased by 3.5% to $7.76 billion for the third quarter of fiscal 2018, driven by growth in Hybrid IT and Intelligent Edge segments.
  • 2Net earnings from continuing operations significantly increased to $452 million ($0.29 per diluted share) from $285 million ($0.17 per diluted share) in the prior year's quarter.
  • 3Gross margin improved to 30.7% in Q3 FY18, up from 29.3% in Q3 FY17, driven by product mix and pricing in Hybrid IT.
  • 4The Hybrid IT segment saw a 2.7% revenue increase, with strong performance in Compute and Storage, while Intelligent Edge revenue surged by 10.4%, led by HPE Aruba products.
  • 5The company's balance sheet shows $5.19 billion in cash and cash equivalents as of July 31, 2018, though this is a decrease from $9.58 billion at the end of fiscal 2017, largely due to share repurchases and debt payments.
  • 6Operating expenses as a percentage of net revenue decreased, reflecting cost management efforts and the impact of the HPE Next initiative.
  • 7The company repurchased approximately $2.6 billion of its stock during the nine months ended July 31, 2018, and increased its quarterly dividend.

Frequently Asked Questions

Revenue growth in the third quarter was primarily driven by the Hybrid IT segment, which saw increases in Compute and Storage products due to higher average unit selling prices and market demand. The Intelligent Edge segment also contributed significantly with a 10.4% revenue increase, led by HPE Aruba campus switching products and edge computing technology.

Profitability improved significantly. Net earnings from continuing operations increased to $452 million from $285 million in the prior year's quarter. This was supported by a higher gross margin of 30.7% and a decrease in operating expenses as a percentage of net revenue, reflecting operational efficiencies and the positive impact of the HPE Next initiative.

As of July 31, 2018, HPE had $5.19 billion in cash and cash equivalents. While this is a decrease from the prior fiscal year-end, it is largely attributable to significant share repurchases totaling $2.6 billion and debt payments of $2.5 billion during the first nine months of the fiscal year. The company also increased its quarterly dividend and has a remaining authorization of $5.7 billion for future share repurchases.

The Tax Cuts and Jobs Act (TCJA) enacted in December 2017 had a significant impact. For the nine months ended July 31, 2018, HPE recorded a provisional tax benefit of $3.3 billion related to various items, including $2.0 billion for the settlement of pre-Separation tax liabilities, $713 million for impacts related to U.S. tax reform (TCJA), and $1.1 billion provisionally related to the Transition Tax. The accounting for the tax effects of the TCJA was ongoing and subject to a one-year measurement period.