Earnings preview: Hewlett Packard’s strained topline dims Q3 recovery hopes

Revenues of Hewlett Packard Enterprise (NYSE: HPE) has been witnessing significant volatility for some time. However, the ongoing shift to high-margin products and cost-cutting efforts helped the information technology firm achieve earnings growth in the recent quarters. It is set to publish third-quarter results on August 27 at 4:05 PM ET.

Wall Street expects the San Jose, California-based tech firm to report earnings of $0.4 per share for the July quarter, which is broadly unchanged from last year’s levels but above the midpoint of the outlook range set by the management. Analysts, meanwhile, do not see a top-line recovery and forecast a 6% drop in revenues to $7.3 billion.

What to Look for

It is expected that the slowdown in China and the softness in hardware sales, mainly PC and printer, will continue to weigh on revenue performance, which will be partially offset by the emerging segments focused on software and data. The stable performance of Aruba, the company’s networking subsidiary, will also contribute to the top-line. The other headwinds include unfavorable exchange rates and pricing pressures due to competition, especially from the likes of Microsoft (MSFT) and Amazon (AMZN) in the cloud segment.

New Biz Model

Hewlett Packard is on an aggressive mission to exit low-margin businesses and shift focus to profitable products and services. The company bought Cray (CRAY) earlier this year, marking its foray into the supercomputer business.

Also read: Cisco Q4 profit beats; stock falls on weak guidance

Market watchers believe that the current market condition is not conducive to enterprise investments in tech hardware. They have warned that IT spending might pick up at a slower rate during the remainder of the year than initially estimated, which is bad news for PC makers like Hewlett Packard and Dell Technologies.

Q2 Report

For the second quarter, the company reported a 4% decline in revenues to $7.2 billion, which also missed the consensus estimate. Encouraged by the stronger-than-expected profit, which rose to $0.42 per share on the back of improved margin growth, the management raised its full-year guidance.  

Related: Hewlett Packard Q2 2019 Earnings Call Transcript

Hewlett Packard shares are currently trading at the lowest level so far this year. They have gained 32% since the company was separated from the combined entity a few years ago. In the past twelve months, the stock lost about 19%.

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