Shares of Hewlett Packard Enterprise (NYSE:HPE) climbed over 6% in early premarket trading Wednesday after the company reported better-than-expected second-quarter earnings and delivered an optimistic outlook, supported by solid performance across its core business segments.
HPE posted adjusted earnings per share of $0.38, surpassing the $0.32 consensus estimate, while revenue rose 6% year-over-year to $7.63 billion.
CEO Antonio Neri attributed the company’s steady progress to disciplined execution and ongoing innovation amid a challenging economic environment. “We delivered a solid performance, achieving yet another quarter of year-over-year revenue growth with strength in each of our product segments,” Neri said.
The quarter saw significant growth in key areas, including a 13% increase in hybrid cloud revenue reaching $1.5 billion, and a 6% gain in server sales to $4.06 billion. The Intelligent Edge division also posted a healthy 7% revenue increase to $1.2 billion, driven by rising enterprise demand for edge computing solutions.
Despite positive top-line momentum, margin pressures remain an issue, continuing a trend from Q1 where aggressive pricing and inventory challenges affected server profitability. Adjusted gross margin held steady at 29.4%, but the unadjusted gross margin declined 460 basis points year-over-year to 28.4%.
Executive Vice President and CFO Marie Myers highlighted the importance of operational discipline and cost management in managing market headwinds: “We are maintaining our focus on achieving efficiencies and streamlining operations across our businesses to position HPE for the future and deliver financial results aligned with our fiscal 2025 outlook,” Myers said.
Looking ahead, HPE guided third-quarter adjusted EPS between $0.40 and $0.45, slightly above the $0.42 consensus, with revenue expected between $8.2 billion and $8.5 billion, matching analyst forecasts. The full-year 2025 adjusted EPS guidance was also raised to a range of $1.78 to $1.90, up from the previous $1.70 to $1.90 estimate.
The company continues to view artificial intelligence as a key growth driver, especially within its server business, which reported a 30% revenue increase year-over-year in Q1. While AI-related demand presents upside potential, investors remain cautious, awaiting margin improvements and progress on HPE’s $350 million cost reduction initiative, which includes a 5% cut in workforce.
Revenue trends in HPE’s GreenLake platform and financial services segment will be closely watched, as the latter showed a slight dip in sales but improved operating margins. Despite recent obstacles, the company’s raised guidance signals confidence in its strategy and its ability to generate long-term shareholder value.
Meanwhile, media reports indicate that activist hedge fund Elliott Investment Management has acquired a stake exceeding $1.5 billion in HPE, becoming one of the largest shareholders. Elliott reportedly plans to engage with HPE’s management, adding an activist dimension to the company’s outlook.
Analysts at Evercore ISI expressed optimism, stating: “We think HPE is poised to see sustained upside bias with or without an activist over next few quarters.”