- Hewlett Packard Enterprise Co. (HPE) experienced an 18% stock drop to $14.82 in premarket trading on Friday after missing Q1 earnings by $0.01 per share, despite a 16.3% revenue increase to $7.85 billion, with mixed segment performance led by a 29% server revenue surge to $4.3 billion.
- The company announced a cost-cutting program targeting $350 million in savings by 2027, affecting 2,500 employees (5% of its 61,000 workforce), while facing a U.S. Justice Department challenge to its $14 billion Juniper Networks acquisition, with a trial set for July 9.
- HPE’s guidance for Q2 fell below consensus for EPS and revenue, with full-year 2025 EPS in-line, reflecting ongoing challenges in profitability and strategic execution amid market and regulatory pressures.
Hewlett Packard Enterprise Co. (HPE) stock plummeted nearly 18% to $14.82 in premarket trading on Friday, following a 4.92% drop to $17.96 in the previous session. The sharp decline comes on the heels of the company’s Q1 earnings report, which revealed a miss of $0.01 against the consensus estimate of $0.50 per share, excluding non-recurring items. Despite the earnings shortfall, HPE managed to deliver revenues of $7.85 billion, aligning closely with the $7.81 billion expected by analysts and marking a robust 16.3% increase from the prior-year period.
Delving into the company’s performance across its various segments paints a nuanced picture. Server revenue emerged as a bright spot, surging 29% to $4.3 billion, with a constant currency (CC) growth of 30%. However, this impressive top-line growth was tempered by a contraction in operating profit margin to 8.1%, down from 11.4% a year ago. In contrast, the Intelligent Edge segment experienced a 5% revenue decline to $1.1 billion (4% CC), with its operating profit margin slipping to 27.4% from 29.4%. The Hybrid Cloud division, on the other hand, saw revenues climb 10% to $1.4 billion (11% CC), accompanied by an improved operating profit margin of 7.0%, up from 4.0%. Financial Services revenue remained stable at $873 million, with a slight 1.6% CC increase and an operating profit margin of 9.4%, compared to 8.5% in the prior-year period.
Beyond the financial metrics, HPE is grappling with strategic challenges that have caught the market’s attention. The company announced a cost-cutting initiative that will span the next 18 months, targeting $350 million in gross savings by fiscal year 2027. This program will impact approximately 2,500 employees, representing about 5% of HPE’s workforce, when accounting for anticipated attrition. With 61,000 employees on its roster as of the end of October, according to the latest annual report, the layoffs signal a significant restructuring effort aimed at streamlining operations and bolstering profitability.
Adding to the complexity, HPE’s proposed $14 billion acquisition of Juniper Networks (JNPR) faces scrutiny from the U.S. Justice Department, which filed a case in federal district court in January to block the deal. Initially announced in January 2024, the transaction was originally slated for completion in early 2025, but HPE now anticipates closure by October 2025, pending the outcome of a trial set to commence on July 9. The uncertainty surrounding this strategic move has likely contributed to investor unease, as the company seeks to expand its footprint in the networking space amid a shifting competitive landscape.
Looking ahead, HPE’s guidance has further dampened market sentiment. For Q2, the company projects earnings per share and revenues below consensus estimates, while its full-year 2025 EPS guidance aligns with expectations. This mixed outlook underscores the challenges HPE faces in balancing growth, profitability, and strategic investments. The server segment’s robust performance highlights the enduring demand for HPE’s core offerings, yet the uneven results across other divisions and the looming cost-cutting measures suggest a period of transition. As the company prepares for the legal battle over the Juniper acquisition, its ability to execute on its cost-saving plan and stabilize margins will be critical in restoring investor confidence. With shares under pressure – 16% in the red year-to-date – and the market digesting these developments, HPE stands at a pivotal juncture, striving to adapt to an evolving industry while addressing immediate financial and regulatory hurdles.
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