10-QPeriod: Q1 FY2020

Hewlett Packard Enterprise Co Quarterly Report for Q1 Ended Jan 31, 2020

Filed March 9, 2020For Securities:HPEHPE-PC

Summary

Hewlett Packard Enterprise (HPE) reported its first quarter fiscal year 2020 results, ending January 31, 2020. The company experienced a year-over-year decrease in net revenue of 8.0%, totaling $6.9 billion. This decline was primarily attributed to weaker demand in the Compute and Storage segments, compounded by commodity and manufacturing capacity constraints. Despite the revenue dip, gross margins improved due to lower commodity costs and a favorable shift towards higher-margin products and services. Net earnings saw a significant increase to $333 million, up from $177 million in the prior year period, leading to a diluted EPS of $0.25. This improvement in profitability, despite lower revenue, was influenced by a significant tax indemnification adjustment in the prior year, which masked the true operating performance. Investors should monitor the company's ongoing execution of the HPE Next initiative, which aims to streamline operations and focus on high-growth areas, as well as the persistent demand challenges in core segments.

Financial Highlights

50 data points
Beta

Revenue

$6.95B

32.8% Gross Margin

Net Income

$333.00M

4.8% Net Margin

EPS (Diluted)

$0.25

Total Assets

$52.24B

Cash & Equivalents

$3.17B

Free Cash Flow

-$79.00M

Financial Statements
Beta
Revenue$6.95B
Cost of Revenue$4.67B
Gross Profit$2.28B
R&D Expenses$485.00M
SG&A Expenses$1.22B
Operating Expenses$6.60B
Operating Income$348.00M
Net Income$333.00M
EPS (Basic)$0.26
EPS (Diluted)$0.25
Shares Outstanding (Basic)1.30B
Shares Outstanding (Diluted)1.31B

Key Highlights

  • 1Net revenue decreased by 8.0% to $6.9 billion, driven by weakness in Compute and Storage segments.
  • 2Gross margin improved by 1.7 percentage points to 32.8%, benefiting from lower commodity costs and a favorable product mix.
  • 3Net earnings increased significantly to $333 million from $177 million in the prior year, partly due to favorable tax items.
  • 4Diluted Earnings Per Share (EPS) rose to $0.25 from $0.13 in the prior year.
  • 5Cash, cash equivalents, and restricted cash decreased to $3.5 billion from $4.1 billion, reflecting share repurchases, dividend payments, and capital expenditures.
  • 6The company is continuing its HPE Next initiative aimed at streamlining operations and focusing on high-growth areas.
  • 7Significant legal proceedings and contingencies are ongoing, with no material loss expected beyond amounts recognized.

Frequently Asked Questions

The primary driver of the revenue decline was weaker market demand in the Compute and Storage segments, exacerbated by commodity and North American manufacturing capacity constraints, and reduced average selling prices.

Despite the decrease in net revenue, profitability improved significantly. Gross margins increased due to lower commodity costs, lower variable compensation expense, and a favorable shift to higher-margin products and services. Net earnings more than doubled year-over-year, partly influenced by favorable tax adjustments.

The HPE Next initiative has been extended to fiscal year 2021 to mitigate global developments and economic uncertainty. The initiative continues to focus on streamlining operations, upgrading back-end systems, and implementing cost-take-out actions to deliver incremental savings.

As of January 31, 2020, cash, cash equivalents, and restricted cash totaled $3.5 billion, a decrease from $4.1 billion at the end of the previous fiscal year. This decrease was mainly due to share repurchases, cash dividend payments, and investments in property, plant, and equipment, partially offset by cash generated from operating activities.