Hewlett Packard Enterprise (NYSE:HPE) Beats Q1 Sales Targets, Provides Optimistic Revenue Guidance for Next Quarter

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2 days ago

Enterprise technology company Hewlett Packard Enterprise (NYSE:HPE) beat Wall Street's revenue expectations in Q1 CY2025, with sales up 5.9% year on year to $7.63 billion. Guidance for next quarter's revenue was optimistic at $8.35 billion at the midpoint, 2.1% above analysts' estimates. Its non-GAAP profit of $0.38 per share was 16.3% above analysts' consensus estimates.
Is now the time to buy Hewlett Packard Enterprise? Find out in our full research report.
Revenue: $7.63 billion vs analyst estimates of $7.46 billion (5.9% year-on-year growth, 2.3% beat)
Adjusted EPS: $0.38 vs analyst estimates of $0.33 (16.3% beat)
Adjusted EBITDA: -$419 million vs analyst estimates of $1.14 billion (-5.5% margin, significant miss)
Revenue Guidance for Q2 CY2025 is $8.35 billion at the midpoint, above analyst estimates of $8.18 billion
Management raised its full-year Adjusted EPS guidance to $1.84 at the midpoint, a 2.2% increase
Operating Margin: -14.5%, down from 5.9% in the same quarter last year
Free Cash Flow was -$1.01 billion, down from $655 million in the same quarter last year
Market Capitalization: $22.78 billion
'We delivered a solid performance, achieving yet another quarter of year-over-year revenue growth with strength in each of our product segments,' said Antonio Neri, president and CEO of Hewlett Packard Enterprise.
Born from the 2015 split of the iconic Silicon Valley pioneer Hewlett-Packard, Hewlett Packard Enterprise (NYSE:HPE) provides edge-to-cloud technology solutions that help businesses capture, analyze, and act upon their data across hybrid IT environments.
A company's long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul.
With $31.65 billion in revenue over the past 12 months, Hewlett Packard Enterprise is a behemoth in the business services sector and benefits from economies of scale, giving it an edge in distribution. This also enables it to gain more leverage on its fixed costs than smaller competitors and the flexibility to offer lower prices. However, its scale is a double-edged sword because finding new avenues for growth becomes difficult when you already have a substantial market presence. To accelerate sales, Hewlett Packard Enterprise likely needs to optimize its pricing or lean into new offerings and international expansion.
As you can see below, Hewlett Packard Enterprise's sales grew at a sluggish 2.9% compounded annual growth rate over the last five years. This shows it failed to generate demand in any major way and is a rough starting point for our analysis.
We at StockStory place the most emphasis on long-term growth, but within business services, a half-decade historical view may miss recent innovations or disruptive industry trends. Hewlett Packard Enterprise's annualized revenue growth of 3.4% over the last two years aligns with its five-year trend, suggesting its demand was consistently weak.
This quarter, Hewlett Packard Enterprise reported year-on-year revenue growth of 5.9%, and its $7.63 billion of revenue exceeded Wall Street's estimates by 2.3%. Company management is currently guiding for a 8.3% year-on-year increase in sales next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 6.4% over the next 12 months, an improvement versus the last two years. This projection is above the sector average and indicates its newer products and services will catalyze better top-line performance.
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Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It's also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.
Hewlett Packard Enterprise was profitable over the last five years but held back by its large cost base. Its average operating margin of 3.9% was weak for a business services business.
Analyzing the trend in its profitability, Hewlett Packard Enterprise's operating margin might fluctuated slightly but has generally stayed the same over the last five years. This raises questions about the company's expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.
This quarter, Hewlett Packard Enterprise generated an operating margin profit margin of negative 14.5%, down 20.4 percentage points year on year. This contraction shows it was less efficient because its expenses grew faster than its revenue.
We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company's growth is profitable.
Hewlett Packard Enterprise's EPS grew at an unimpressive 4% compounded annual growth rate over the last five years. This performance was better than its flat revenue, but we take it with a grain of salt because its operating margin didn't expand and it didn't repurchase its shares, meaning the delta came from reduced interest expenses or taxes.
In Q1, Hewlett Packard Enterprise reported EPS at $0.38, down from $0.42 in the same quarter last year. Despite falling year on year, this print easily cleared analysts' estimates. Over the next 12 months, Wall Street expects Hewlett Packard Enterprise's full-year EPS of $1.95 to stay about the same.
We were impressed by how significantly Hewlett Packard Enterprise blew past analysts' EPS expectations this quarter. We were also glad its quarterly revenue guidance and full-year EPS forecast quarter exceeded Wall Street's estimates. Zooming out, we think this was a solid print. The stock traded up 3.3% to $18.25 immediately after reporting.
Indeed, Hewlett Packard Enterprise had a rock-solid quarterly earnings result, but is this stock a good investment here? We think that the latest quarter is just one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here, it's free.
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