Hewlett Packard Enterprise stock sinks 20% on disappointing guidance, job cuts

Investing.com -- Hewlett Packard Enterprise Co (NYSE:HPE) shares tanked nearly 20% in premarket trading Friday after the company reported mixed first-quarter results and provided disappointing guidance, while also announcing job cuts.

The enterprise technology company reported adjusted earnings per share of $0.49 for the first quarter, missing analyst estimates of $0.50. Revenue came in at $7.85 billion, slightly above the consensus of $7.81 billion and up 16% YoY.

"HPE achieved our fourth consecutive quarter of YoY revenue growth, increasing revenue by double digits in Q1," said Antonio Neri, president and CEO. "I am confident in our ability to keep winning in the market, which will, in turn, drive shareholder returns."

Despite the positive revenue growth, HPE's gross margins declined significantly, with non-GAAP gross margin falling 680 basis points YoY to 29.4%.

The company's Server segment saw strong growth, with revenue up 29% YoY to $4.3 billion. Yet, the IE segment experienced a 5% YoY decline in revenue to $1.1 billion.

HPE's outlook overshadowed its quarterly performance. The company forecasts second-quarter adjusted EPS of $0.28-$0.34, well below analyst expectations of $0.50. Revenue guidance of $7.2-$7.6 billion also fell short of the $7.93 billion consensus.

For fiscal 2025, HPE projects adjusted EPS of $1.70-$1.90, significantly lower than the $2.13 analysts were expecting. The company expects revenue growth of 7-11% in constant currency, with non-GAAP operating profit growth between -10% and 0%.

Operating margin (OM) guide for the year was around 9% at the midpoint, also below the 10.7% consensus estimate.

In a post-earnings note, Bank of America (NYSE:BAC) analysts said they see the margins and EPS guide "as particularly disappointing in light of the revenue growth," fueled by a recovery in its Intelligent Edge (IE) segment and traditional and AI server growth.

Adding to investor concerns, HPE announced a cost reduction program aimed at cutting structural operating costs. The plan involves workforce reductions and is expected to deliver gross savings of approximately $350 million by fiscal 2027.

Despite revenue growth, the cost takeout initiative "signals a much worse competitive pricing dynamic, which we view as structurally more bearish and a modest impact from tariffs," analysts added, trimming their price target on the stock to $20 from $26.

Morgan Stanley (NYSE:MS) analysts also lowered their HPE estimates and price objective to $24 from $28.

"HPE's FQ1 brought focus back to the core business, with gross margins/execution being worse than expected, causing us to reduce FY25 EPS," analysts led by Meta A. Marshall noted.

They said HPE's acquisition of Juniper Networks (NYSE:JNPR) needs to close for the stock to reach their price target "both because of accretion potential, and the ability to see multiple expand."

Luke Juricic contributed to this report.

This article first appeared in Investing.com