HPE Q3 Earnings Beat: Will Strong Q4 and FY24 Guidance Lift Shares?

Core Insights - Hewlett Packard Enterprise Company (HPE) reported better-than-expected results for Q3 fiscal 2024, with non-GAAP earnings of 50 cents per share, surpassing the Zacks Consensus Estimate of 46 cents and management's guidance of 43-48 cents [1] - The company's non-GAAP earnings grew 2% year over year and 19% sequentially, driven by strong sales growth and disciplined cost management [1] - HPE initiated strong guidance for Q4 and fiscal 2024, with the stock gaining 10.5% year-to-date [1] Top-Line Performance - HPE's Q3 revenues reached $7.71 billion, a 10% increase year over year and a 7% increase sequentially, driven by recovery in the enterprise division and growth in AI, hybrid cloud, and networking [2] - The revenue figure exceeded the Zacks Consensus Estimate of $7.64 billion and fell within management's guidance range of $7.4-$7.8 billion [2] - In constant currency, revenues increased 10% year over year, with an annualized revenue run rate of $1.7 billion, up 35% year over year [2] Segment-Wise Performance - The server segment saw sales soar 35% year over year and 10.7% sequentially to $4.28 billion, driven by strong demand for AI servers [3] - The Intelligent Edge division's revenues declined 23% year over year but rose 3.2% sequentially to $1.12 billion, with demand recovering and backlogs normalizing [3][4] - The hybrid cloud division's sales decreased 7% year over year but increased 3.5% sequentially to $1.3 billion, with an operating profit margin of 5.1% [4] Financial Performance - HPE's non-GAAP gross profit was $2.45 billion, down 2.6% year over year but up 2.8% sequentially, with a gross margin of 31.8% [7] - Non-GAAP operating profit increased 7.4% year over year and 12.7% sequentially to $771 million, with an operating margin of 10% [7] - The company generated operating cash flow of $1.15 billion and free cash flow of $669 million in Q3 [8] Guidance for Q4 and FY24 - HPE forecasts Q4 revenues between $8.1 billion and $8.4 billion, with non-GAAP EPS expected in the range of 52-57 cents [9] - For fiscal 2024, HPE revised revenue growth guidance to 1-3% in constant currency, with non-GAAP EPS projected between $1.92 and $1.97 [9][10] - The company expects free cash flow to be $1.9 billion in fiscal 2024 [10]