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Hewlett Packard Enterprise Beats Q1 Expectations

Earnings per share were 41 cents versus a consensus of 40 cents, while revenue at $12.7 billion was slightly better than the $12.68 billion expected.


Shares of Hewlett Packard Enterprise rose by more than 6 percent in after-hours trading as the company posted first-quarter results that slightly beat the expectations of analysts. HPE expects to earn a higher profit this year than had been previously forecast.

Earnings per share were 41 cents versus a consensus of 40 cents, while revenue at $12.7 billion was slightly better than the $12.68 billion expected. The company said it expects to post per-share earnings in the range of $1.85 to $1.95 a share in its 2016 fiscal year, besting the average forecast by analysts of $1.87.

HPE, the portion of the former Hewlett-Packard that sells servers, data storage and networking gear, also said it plans to return to shareholders in the form of a share buyback about $2 billion expected from the sale of certain assets in China. Last year the company said it would make about $2.3 billion on the sale of a 51 percent controlling stake in its China-based networking operations H3C Technologies to Tsinghua Holdings, a state-controlled company.

“We’re backing up the truck” to buy shares while the price is relatively low, CEO Meg Whitman said on a conference call with analysts.

Sales in the biggest business unit, the Enterprise Group, rose 1 percent to $7.1 billion, but would have risen 7 percent after adjusting for the effects of currency exchange rates. The strong U.S. dollar hurts American-based companies in some cases when they sell in countries where local currencies like the euro and the Japanese yen are weaker.

Growth was strong in the networking business, where revenue rose 54 percent year-on-year to $863 million. That was driven mainly by last year’s acquisition of the office Wi-Fi gear maker Aruba Networks. Sales of servers and storage gear declined slightly year-on-year.

“It was a solid quarter for the Enterprise Group, which is where HPE gets most of its operating profit,” said Pat Moorhead of the research firm Moor Insights and Strategy. “Even when you back out Aruba and networking, servers were up 5 percent and storage up 3 percent on a constant currency basis. Hardware spending has been in a tough place industry-wide lately, so this is a pretty strong showing from HPE given that environment.”

Whitman took a shot at rivals Dell and EMC, which are in the process of combining in a merger worth more than $60 billion. She said that when IBM sold its server business to China’s Lenovo in 2014, it presented an opportunity to take business from a rival. “We have a big opportunity to go and take business from Dell and EMC much as we did from Lenovo,” she said.

Enterprise Services, the IT outsourcing unit, saw revenue fall 6 percent to $4.7 billion, though HPE said it would have been flat after adjusting for the effect of currencies. Software sales fell 10 percent to $780 million, or down 6 percent after currencies. Revenue from its financing arm fell 3 percent to $776 million, but would have risen after adjusting for currencies, the company said.

Whitman said that the services unit, which has long seen significant declines in revenue, has come through the worst portion of what has been a long process of rebuilding its business. Several large customers opted not to renew their contracts since 2013. She also said the diversity of customers has improved. “In FY 2013 we had three accounts that amounted to 65 percent of revenue. Now no single customer accounts for more than 10 percent of services revenue,” she said.

(Correction: We initially reported HPE’s expected per-share profit in FY16 as topping out at $1.97, not $1.95. Sorry about that.)

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