HPE slashes full-year earnings forecast on currencies, supply chain and Russia

(Bloomberg) – Hewlett Packard Enterprise Co. fell about 6% in extended trading after lowering its full-year profit forecast, citing unfavorable currency movements, supply chain disruptions and the impact of leaving the Russian market.

Earnings, excluding certain items, will be $2.10 per share in the year, seven cents per share lower than the previous guidance released in March. Earnings for the current period, which ends in July, will be 44 cents to 54 cents per share, the Spring, Texas-based company said in a statement Wednesday.

While earnings have been impacted by supply chain challenges and the costs of withdrawing from Russia following the invasion of Ukraine, customer demand remains strong, Chief Executive Antonio Neri said. in an interview. “We have a strong, high-quality backlog,” Neri said.

HPE is trying to reduce its reliance on hardware sales such as data center servers by encouraging customers to pay for additional services with subscriptions. The company said its annualized revenue rate, which reflects future payments under the subscription software-as-a-service model, jumped 25% to $829 million. HPE’s Intelligent Edge service revenue rose 8% to $867 million, about half the growth rate in the same quarter last year and less than analysts had expected.

Revenue for the fiscal second quarter was $6.71 billion, little change from the period a year ago, and below analysts’ average estimate of $6.8 billion. Earnings, excluding certain items, were 44 cents per share, versus an average projection of 45 cents.

HPE’s Intelligent Edge service revenue rose 8% to $867 million, less than analysts expected and about half the growth rate in the year-ago quarter. The unit, which is a key part of HPE’s transformation, covers products that allow companies to collect and process data where it is generated instead of sending it to an external storage center.

In February, HPE said it stopped all shipments and sales to Russia and Belarus, which cost $126 million in the second quarter. The company said it has now decided to end all in-country operations, which will result in non-material charges in the current period.

Supply chains continued to constrain the company’s ability to meet demand, particularly with shutdowns in the Chinese cities of Shenzen and Shanghai, Neri said. He estimates China’s lockdowns combined with the impact from Russia cost the company $250 million in the quarter.

Neri added that a strong US dollar weighed on earnings, as the majority of HPE’s business is generated from international sales. Earlier this month, the Bloomberg dollar index hit its highest level since the early days of the pandemic and remains elevated.

The stock fell to $14.50 in extended trading after closing at $15.78 in New York. Stocks have gained just under 1% this year.

©2022 Bloomberg LP

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