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Holly LaFon
Holly LaFon
Articles (8090) 

Primecap Management Boosts Stake in Hewlett Packard as Stock Sinks

Hewlett incurs excess costs as it moves away from software

October 10, 2017 | About:

Quiet value-investing firm Primecap Management on Sept. 30 boosted its stake in IT services company Hewlett Packard Enterprises (NYSE:HPE), a stock that slumped more than a third year to date, to 5.58%.

The value-driven fund amassed 20,196,637 shares, boosting its position by 28.8% to 90,353,807 shares. Its Hewlett Packard stake, valued at $1.16 billion, represents 5.58% of the company. Primecap has recorded a position in Hewlett Packard since the fourth quarter of 2015, when it split from PC-maker HP Inc. (NYSE:HP). Hewlett Packard’s share price ended Tuesday at $14.98, up from around $9 on average for the quarter of the separation.

Primecap primarily invests in companies the market has disfavored for various reasons. Investors have traded down Hewlett Packard as it incurs costs from the spin-off of its software and enterprises services business, focusing on enterprise and financial services. In the third quarter, Hewlett Packard reported 15 cents in GAAP net earnings per share from continuing operations, a decline from $1.43 the prior-year period. Non-GAAP net EPS from continuing operations excluded $269 million and 16 cents per diluted share in after-charges, which included separation and restructuring costs and amounted to 31 cents, a decline from 40 cents in the prior-year quarter.

Costs associated with closing its software spin-off will also adversely impact its full-year results, forcing the company to lower its 2017 guidance, the company said in a release. Including 13 cents in diluted earnings per share in related charges, Hewlett Packard estimated GAPP diluted losses per share in the range of 11 cents to 7 cents for the year.

Hewlett Packard saw revenue grow in its two remaining segments year over year. Enterprise group revenue rose 3%, led by a 16% increase in its net working business. Financial services revenue grew 10%, with portfolio assets up 2% and financial volume down 8%. Net revenue growth for both segments was 3%.

The company also reported $428 million in free cash flow as it paid $107 million in dividends and repurchased $625 million worth of shares.

On a conference call, Hewlett Packard CEO Meg Whitman announced the implementation of a program called HPE Next to guide the next stages of the more streamlined company’s future.

The goal is to “produce an organization that is precisely built to compete and win in the marketplace,” Whitman said, by simplifying and making it more efficient as it cuts costs.

“These efforts will simplify everything from how we engage with customers to how we process orders and compensate sales,” Whitman said.

Hewlett Packard is also honing its focus on its internet of things, artificial intelligence, security hybrid IT businesses moving forward.


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