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Why Hewlett Packard Enterprise Stock Tumbled Today

By Timothy Green – May 22, 2020 at 12:40PM

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Sales dropped hard amid the pandemic, and the company is implementing a broad cost-cutting plan.

What happened

Shares of Hewlett Packard Enterprise (HPE 0.25%) slumped on Friday after the company reported fiscal second-quarter results that missed the mark and announced plans to slash costs over the next three years. The tech stock was down about 11.5% at 12:50 p.m. EDT.

So what

HPE reported second-quarter revenue of $6.0 billion, down 16% year over year and $280 million below the average analyst estimate. The company faced supply-chain constraints and delays in customer acceptance, which increased the backlog significantly. Revenue in the computer segment, HPE's largest, was down 19% to $2.6 billion.

A declining chart.

Image source: Getty Images.

Non-GAAP (adjusted) earnings per share came in at $0.22, down from $0.42 in the prior-year period and $0.07 lower than analysts were expecting. Adjusted earnings exclude $1.1 billion ($0.86 per share) of charges mostly driven by the impairment of goodwill.

HPE has taken some immediate actions to cut costs, including salary reductions for board members and executives. The company also announced a three-year plan to bring costs down further. HPE expects to deliver gross savings of at least $1 billion, driven by changes in the company's workforce and business-process improvements. The cost cuts will require total cash payments between $1.0 billion and $1.3 billion through 2022.

Now what

HPE pulled its full-year guidance in April, and the company declined to provide any new guidance for the third quarter or for 2020, along with its earnings report. According to a statement by HPE CEO Antonia Neri:

We are taking decisive steps to navigate the near term uncertainty, while ensuring we align resources to priority growth areas so that we are well positioned to accelerate our edge-to-cloud strategy and address the needs of our customers in a post-COVID-19 world.

Including Friday's slump, shares of HPE are now down about 48% from their 52-week high.

Timothy Green has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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