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HP Enterprises Meg Whitman

HP Enterprise's Whitman Shows Early Success After Split

March 4, 2016
“We’re starting to see now the real benefits of focus,” Meg Whitman said in an interview.

Meg Whitman came out of the gates with an inaugural earnings report that reassured investors, providing early support for her bold move to split up Hewlett-Packard.

Whitman, chief executive officer of the newly formed Hewlett Packard Enterprise, forecast profit in the current quarter that may exceed some analysts’ estimates. The company on Thursday also reported earnings that topped projections in its first full quarter of results as a standalone entity. Shares rose in extended trading.

The November split of one of Silicon Valley’s most storied pioneers left HP Enterprise as the larger of the two new companies based on market valuation. Now, Whitman will need to prove she can build on any momentum with stronger profits and growth even as she competes with Dell Inc., which is set to acquire EMC Corp. in the biggest tech deal of its kind.

“We’re starting to see now the real benefits of focus,” Whitman said in an interview. “What the split has allowed us to do is to accelerate the turnaround of Hewlett Packard Enterprise and focus on a smaller number of things.”

The company will return at least 100% of its free cash flow outlook to shareholders in the 2016 fiscal year, Chief Financial Officer Tim Stonesifer said Thursday in a statement. “In addition, when the Tsinghua transaction closes, we plan to use the majority of approximately $2 billion received to repurchase shares.”

The company, which targets corporate customers with high-tech gear, services and software, forecast current quarter profit excluding some items of 39 cents to 43 cents a share. That compares with analysts’ average estimate of 42 cents.

Tighter Focus

“The focus helps the company kind of tie things together,” said Jayson Noland, an analyst at Robert W. Baird & Co., who has the equivalent of a hold rating on the stock. “At least with HPE now, you’re talking about all enterprise.”

HP Enterprise affirmed its forecast for 2016 fiscal year profit, excluding certain items, saying it will be $1.85 to $1.95 a share. That compares with analysts’ average estimate of $1.86.

Revenue declined 2.5% to $12.7 billion in the quarter that ended Jan. 31 from a year earlier, meeting analysts’ estimates. Adjusted earnings were 41 cents a share compared with estimates of 40 cents.

Segment Results

Revenue for the company’s largest unit -- the Enterprise Group -- climbed 1% to $7.1 billion. The server and storage businesses posted sales declines while networking revenue gained 54%, the company said.

Sales in the Enterprise Services unit, the next biggest division, fell 6% to $4.7 billion. Software revenue dropped 10% to $780 million and financial services declined 3% to $776 million.

The other half of the Hewlett-Packard split, HP Inc., didn’t fare as well in its initial earnings report. The company, which sells personal computers and printers, last week provided an outlook that was generally in line with estimates, but said it would accelerate previously announced job cuts.

HP Enterprise released its results as Dell’s deal for EMC is close to completion -- challenging Whitman’s approach that getting smaller is the way to become more effective. Together, Dell-EMC will have a fuller suite of storage, servers, PCs and printers -- aiming to offer customers a simple one-stop-shop for technology gear.

Whitman said her approach will be better -- and looked forward competing with Dell, in part, by stepping up sales and marketing efforts that could help grab a bigger share of the industry.

“We’re super focused on being fast and nimble for our customers,” she said. “Both strategies may work. I happen to like our plan better than the Dell-EMC hand.”

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Licensed content from Bloomberg, copyright 2016.

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