Hewlett Packard (HPE) Soars on Q2 Earnings Beat, Strong Guidance

Core Viewpoint - Hewlett Packard Enterprise Company (HPE) reported better-than-expected results for Q2 fiscal 2024, leading to a 15.3% increase in shares during extended trading. The positive outlook for Q3 and full fiscal 2024, driven by strong sales of AI-capable servers, further boosted investor confidence [1][10]. Financial Performance - HPE's non-GAAP earnings for Q2 were 42 cents per share, exceeding the Zacks Consensus Estimate by 10.5% and management's guidance of 36-41 cents. However, this figure was 19% lower than the same quarter last year and down 13% sequentially [1][2]. - Revenues for Q2 reached $7.2 billion, a 3% increase year-over-year and a 7% increase sequentially, surpassing the Zacks Consensus Estimate of $6.81 billion. The annualized revenue run rate was up 37% year-over-year to $1.5 billion [3][4]. - The server segment saw sales soar 18% year-over-year to $3.87 billion, driven by demand for AI servers, with AI system product revenues more than doubling sequentially to over $900 million [3][4]. Segment Performance - The Intelligent Edge division's revenues fell 19% year-over-year to $1.09 billion, reflecting a soft demand environment and strong backlog consumption in previous quarters [4]. - The hybrid cloud division's sales declined 8% year-over-year but increased 1% sequentially to $1.26 billion, benefiting from cross-selling within HPE GreenLake offerings [5]. - The Financial Services segment reported revenues of $867 million, a 1% increase year-over-year but a 1% decline sequentially, with an operating margin of 9.3% [6]. Operating Results - Non-GAAP gross profit was $2.38 billion, down 6% year-over-year, with a gross margin contraction to 33.1% due to a shift from high-margin Intelligent Edge revenues to Server revenues [8]. - Non-GAAP operating profit declined 14% year-over-year to $684 million, with an operating margin of 9.5% [8]. Balance Sheet and Cash Flow - HPE ended Q2 with $2.68 billion in cash and cash equivalents, down from $3.76 billion in the previous quarter. Operating cash flow for Q2 was $1.09 billion, with free cash flow of $610 million [9]. Guidance Update - HPE forecasts Q3 revenues between $7.4 billion and $7.8 billion, with non-GAAP EPS expected in the range of 43-48 cents. For fiscal 2024, revenue growth is revised to 1-3%, and non-GAAP EPS guidance is updated to $1.85-$1.95 [10][11].