10-QPeriod: Q2 FY2019

Hewlett Packard Enterprise Co Quarterly Report for Q2 Ended Apr 30, 2019

Filed May 31, 2019For Securities:HPEHPE-PC

Summary

Hewlett Packard Enterprise (HPE) reported a decrease in net revenue for both the three and six-month periods ended April 30, 2019, compared to the prior year. This decline was primarily attributed to lower sales in the Hybrid IT segment, specifically in Compute (Tier-1 server sales), and HPE Pointnext services. The Intelligent Edge segment also saw a revenue decrease due to sales execution issues in Aruba products. Despite the revenue challenges, HPE demonstrated improved profitability, with gross margin increasing by 2.0 percentage points for the quarter and 2.4 percentage points for the six months, driven by a shift towards higher-margin products and cost management initiatives. The company continued to execute its HPE Next initiative, which focuses on streamlining operations and investing in high-growth, higher-margin solutions. The acquisition of Cray Inc. was announced subsequent to the quarter, valued at approximately $1.3 billion, intended to bolster the Hybrid IT segment. Financially, cash reserves decreased due to significant share repurchases and dividend payments, though operating cash flow remained positive.

Financial Highlights

49 data points
Beta

Revenue

$7.15B

32.2% Gross Margin

Net Income

$419.00M

5.9% Net Margin

EPS (Diluted)

$0.30

Total Assets

$51.14B

Cash & Equivalents

$3.58B

Free Cash Flow

$987.00M

Financial Statements
Beta
Revenue$7.15B
Cost of Revenue$4.84B
Gross Profit$2.31B
R&D Expenses$457.00M
SG&A Expenses$1.21B
Operating Expenses$6.72B
Operating Income$434.00M
Net Income$419.00M
EPS (Basic)$0.31
EPS (Diluted)$0.30
Shares Outstanding (Basic)1.37B
Shares Outstanding (Diluted)1.38B

Key Highlights

  • 1Net revenue decreased by 4.3% for the three months and 2.9% for the six months ended April 30, 2019, compared to the prior year.
  • 2Gross margin improved significantly, up 2.0 percentage points for the quarter and 2.4 percentage points for the six months, reflecting a favorable product mix and cost efficiencies.
  • 3Hybrid IT segment revenue declined, primarily due to lower Tier-1 server sales and decreased HPE Pointnext services.
  • 4Intelligent Edge segment revenue also decreased, impacted by sales execution issues in Aruba products.
  • 5The company announced a definitive agreement to acquire Cray Inc. for approximately $1.3 billion.
  • 6Cash, cash equivalents, and restricted cash decreased by approximately $1.3 billion from the prior fiscal year-end, largely due to share repurchases and dividend payments.
  • 7Net earnings from continuing operations were $419 million for the quarter and $596 million for the six months.

Frequently Asked Questions

The primary driver for the decrease in net revenue for both the three and six-month periods ending April 30, 2019, was a decline in the Hybrid IT segment, specifically due to lower Tier-1 server sales within the Compute business and reduced HPE Pointnext services revenue. Additionally, the Intelligent Edge segment experienced lower sales, particularly in Aruba products, partly due to sales execution issues.

HPE's gross margin showed significant improvement, increasing by 2.0 percentage points for the three months and 2.4 percentage points for the six months ended April 30, 2019, compared to the prior year. This improvement was primarily attributed to a shift in revenue mix towards higher-margin products within the Hybrid IT segment, alongside effective cost management initiatives and a decrease in commodity costs.

The HPE Next initiative is ongoing and contributing to improved profitability. While transformation costs associated with the initiative decreased significantly year-over-year, the initiative is focused on streamlining offerings and business processes, and shifting investments towards higher-growth, higher-margin solutions and services, which positively impacted the performance of certain business units and contributed to the gross margin expansion.

As of April 30, 2019, HPE's cash, cash equivalents, and restricted cash decreased by approximately $1.3 billion from the prior fiscal year-end. This decrease was primarily due to substantial share repurchases and dividend payments totaling about $1.7 billion. Despite this reduction, operating cash flow remained positive at $1.369 billion for the first six months of fiscal 2019, indicating continued operational cash generation.