Post Earnings Coverage as HPE Earnings Tops Expectations and Announces Spinoff

LONDON, UK / ACCESSWIRE / September 9, 2016 / Active Wall St. announces its post-earnings coverage on Hewlett Packard Enterprise Company (NYSE: HPE) (“HPE”). The company released its third quarter fiscal 2016 earnings results on September 07th, 2016. Hewlett Packard Enterprise’s earnings topped analysts’ expectation. Nonetheless, the earnings numbers were overshadowed by the announcement of $8.8 billion spin-off and merger. Register with us now for your free membership at: http://www.activewallst.com/register/.

Today, AWS is promoting its earnings coverage on HPE; touching on Computer Sciences Corp. (NYSE: CSC). Get our free coverage by signing up to:

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Earnings Reviewed

For the quarter ended on July 31, 2016, HPE reported GAAP net earnings of $2.27 billion, or $1.32 per diluted share, compared to $320 million, or $0.18 per diluted share, a year earlier. GAAP net earnings came in above HPE’s previously guidance of $1.10 per share to $1.14 per share. The seven fold jump in net income was attributed to a $1.4 billion (or $0.83 per share) after-tax gain from the sale of H3C. On an adjusted basis, excluding one-time gains and charges, HPE reported earnings of $0.49 per share. Analysts had predicted earnings of $0.44 per share. HPE’s revenue declined 6.5% to $12.2 billion from $13.06 billion in Q3 FY15, and below estimates of $12.6 billion.

Segment Details

For Q3 FY16, HPE’s Enterprise Group reported revenue of $6.5 billion, down 8% on y-o-y basis.

The company’s Enterprise Services segment reported revenue $4.7 billion, down 5% compared to Q3 FY15, with an 8.3% operating margin.

Revenue from its Software unit was down 18% on y-o-y basis to $738 million with an operating margin of 17.8%.

HPE’s Financial Services division reported revenue of $812 million, up 1% on y-o-y basis; the business delivered an operating margin of 9.9%.

Spinoff

In its earnings press release, HPE also announced plans for spin-off and merger of its non-core software assets with Micro Focus in a transaction valued at approximately $8.8 billion. As part of the deal, HPE will receive $2.5 billion in cash and its shareholders will own just over 50.1% of the new company.

The proposed arrangement would be the largest purchase by a British firm of a foreign technology company. The move comes despite a significant decline in the British pound against the U.S. dollar, following the Brexit, thus making the acquisition potentially more expensive for Micro Focus.

In November 2015, Hewlett-Packard Co. was split into two companies HPE and HP Inc. (NYSE: HPQ). HPE which sells hardware, software and services to businesses, has moved to further narrow the company’s focus through a series of sales and spinoffs. On May 24, 2016, the company agreed to spin off its technology services business that employs about 100,000 people, and merge it with operations of Computer Sciences Corp., in a transaction valued around $8.5 billion. During the same month, HPE completed a $2.3 billion deal in China to sell a 51% stake in a venture called H3C that sells networking, server and storage hardware, and related services.

Financials

The company reported Q3 FY16 cash flow from operations of $1.7 billion. On the books, cash and cash equivalents totalled $10.74 billion as of July 31, 2016, versus $9.84 as of October 31, 2015.

Outlook

HPE updated its guidance for FY 2016. The company is forecasting adjusted earnings between $1.90 per share and $1.95 per share, up from a prior projection of between $1.68 per share and $1.78 per share. For Q4 FY16, the company is projecting adjusted earnings of $0.58 per share to $0.63 per share. Analysts had predicted earnings of $0.60 per share.

Stock Performance

Hewlett Packard Enterprise’s share price finished yesterday’s trading session at $21.38, tumbling 3.21%. A total volume of 29.25 million shares exchanged hands, which was higher than its 3-months average volume of 10.23 million shares. The stock has advanced 9.36% and 34.87% in the last three months and past six months, respectively. Furthermore, since the start of the year, shares of the company soared 41.59%. The stock is trading at a PE ratio of 16.89 and a dividend yield of 1.03%.

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