Hewlett Packard Enterprise Co (HPE) Faces Revenue Decline but Boosts Profit Margins and ARR in Q1 Fiscal 2024

Despite Market Headwinds, HPE's Strategic Focus on Recurring Revenue and Operational Discipline Yields Financial Gains

  • Revenue: $6.8 billion, a 14% decrease from the prior-year period.
  • Annualized Revenue Run-Rate (ARR): $1.4 billion, marking a significant 42% increase year-over-year.
  • Gross Margins: GAAP gross profit margin improved to 36.4%, a 240 basis point increase from the prior-year period.
  • Earnings Per Share (EPS): GAAP diluted net EPS at $0.29, down 24% from the prior-year period, yet above guidance.
  • Free Cash Flow (FCF): Improved by $844 million from the prior-year period, despite being negative at $(482) million.
  • Dividends: A regular cash dividend of $0.13 per share announced, payable on April 12, 2024.
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On February 29, 2024, Hewlett Packard Enterprise Co (HPE, Financial) released its 8-K filing, detailing the financial outcomes for the first quarter ended January 31, 2024. HPE, a global edge-to-cloud company, reported a mixed financial performance, with a notable decline in revenue but an increase in profitability and annualized revenue run-rate (ARR).

HPE's revenue for the quarter stood at $6.8 billion, reflecting a 14% decrease from the same period last year. This decline was consistent in both actual dollars and constant currency. However, the company's ARR experienced a robust 42% year-over-year growth, reaching $1.4 billion. This growth in ARR underscores HPE's successful strategic pivot towards a recurring revenue model, which is increasingly important in the technology sector where predictable and stable revenue streams are highly valued.

The company's gross margins improved significantly, with GAAP gross profit margin increasing by 240 basis points to 36.4% compared to the prior-year period. This improvement in profitability is indicative of HPE's operational efficiency and its ability to manage costs effectively, even in a challenging market environment.

Despite the revenue decline, HPE's diluted net earnings per share (EPS) on a GAAP basis was $0.29, a 24% decrease from the prior-year period but still above the midpoint of the guidance range. This performance suggests that while top-line growth was pressured, bottom-line results benefited from the company's focus on profitability.

Free cash flow (FCF) for the quarter was negative at $(482) million, yet it showed an improvement of $844 million from the prior-year period. The negative FCF highlights the investment phase of the company's transformation, but the year-over-year improvement signals progress towards generating positive cash flows in the future.

Antonio Neri, president and CEO of Hewlett Packard Enterprise, commented on the results:

"HPE exceeded our profitability expectations and drove near-record year-over-year growth in our recurring revenue in the face of market headwinds, demonstrating the relevance of our strategy."

Marie Myers, executive vice president and CFO of Hewlett Packard Enterprise, added:

"The fundamentals of our business are strong, we are controlling what we can control, and we are optimistic about delivering strong shareholder returns over the remainder of the fiscal year."

Looking ahead, HPE provided guidance for the second quarter of fiscal 2024, estimating revenue to be in the range of $6.6 billion to $7.0 billion and GAAP diluted net EPS to be between $0.20 and $0.25. For the full fiscal year 2024, the company expects revenue growth to be flat to 2% in constant currency and forecasts GAAP operating profit growth to be in the range of 7% to 11%.

Overall, HPE's first-quarter results reflect a company in transition, focusing on building a more stable and profitable business model in the face of external challenges. The company's ability to grow its ARR and improve profit margins despite a revenue decline is a testament to its strategic focus and operational discipline.

For more detailed information on Hewlett Packard Enterprise Co (HPE, Financial)'s financial performance, please refer to the full earnings release and financial statements available through the provided 8-K filing.

Explore the complete 8-K earnings release (here) from Hewlett Packard Enterprise Co for further details.