HPE plunges after announcing cost-cutting plan and underwhelming outlook

HP Enterprise’s stock tanked over 17% in after-hours trading on Thursday after reporting a mild revenue beat in its latest quarter and issuing weak guidance for the present quarter and full year.

The data center equipment maker reported $7.85 billion in first-quarter revenue, marking a 17% rise from the year before on a constant currency basis and above consensus estimates of $7.81 billion according to analysts polled by Bloomberg. Adjusted earnings per share, meanwhile, came in at $0.49, roughly in line with analyst estimates of $0.50.

Going forward, the company disappointed investors on several measures. For its second quarter, the company said it expects adjusted earnings between $0.28 to $0.34 per share, coming in below analyst estimates of $0.48, with revenue between $7.2 billion and $7.6 billion, below forecasts of $7.94 billion.

For the full year, the company expects adjusted earnings per share in a range of $1.70 to $1.90, under analysts’ estimates for $2.12 per share, with revenue growth between 7% and 11%, in line with what analysts had penciled in.

President and CEO Antonio Neri said the company “could have executed better in some areas in the quarter,” particularly in its server segment. The segment, which composes a majority of the company’s overall revenue, saw strong 29% revenue growth but with tighter operating margins, down to 8.1% from 11.4% a year ago. The company’s overall adjusted gross profit margin also fell, down to 29.4% from 36.2% a year prior.

The company said it will be executing a cost reduction program, including cuts to its workforce, through 2026 in order to reduce structural operating costs and deliver profit growth. The plan will save approximately $350 million by fiscal year 2027, the company said.

HPE’s stock has come under pressure recently, losing about 26% through today’s market close since notching an all-time high in January, largely due to an antitrust lawsuit from the Justice Department over the company’s efforts to acquire Juniper. The DOJ alleges the deal, worth about $14 billion, would harm competition in the enterprise wireless equipment market, bringing the industry’s three main players — HPE, Juniper, and Cisco Systems Inc. — to just two that would control a combined 70% of the market.