HPE lifted its long-term growth targets after revenue gains across both of its segments drove a more than fivefold increase in its profit during the third quarter.
The company continues to benefit from broad-based artificial-intelligence adoption, with infrastructure investments and modernization driving demand for its servers and networking solutions, Chief Financial Officer Marie Myers said.
The quarter's results indicate "that we've got the right portfolio at the right time, given what you're seeing on AI and the tailwinds it's providing," Myers said in an interview. "The guide really represents the exceptional demand profile that we're seeing across both segments."
Myers said the company is set to announce two multi-billion-dollar deals that closed after the end of the quarter - one data-center networking deal and one enterprise AI deal with a hyperscaler. The networking deal is in particular a "big proof point" for HPE's opportunity in data-center networking, following its acquisition of Juniper Networks last year, Myers said.
The momentum prompted HPE to lift its revenue growth targets. The company now expects revenue to rise between 34% and 37% in the current fiscal year, up from a previous range of 29% to 33%. Revenue in fiscal 2027 is now expected to grow between 13% and 17%, up from a range of 8% to 12%.
Analysts polled by FactSet are expecting revenue in the current fiscal year of $45.05 billion and fiscal 2027 revenue of $50.3 billion, representing 12% growth.
HPE also said it expects full-year adjusted earnings per share between $3.75 and $3.85, up from a prior expectation for $3.35 to $3.45. It's also forecasting adjusted earnings per share growth of 16% to 20% in fiscal 2027, up from a range of 12% to 16%.
Analysts currently expect adjusted earnings of $3.44 a share this fiscal year and $4.08 a share next year, representing 19% growth.
The company on Wednesday reported a profit of $1.54 billion, or $1.06 a share, in the quarter ended July 31. That compares with a profit of $305 million, or 21 cents a share, a year earlier.
Stripping out certain one-time items, the company reported adjusted earnings of $1.11 a share. Analysts were expecting 93 cents a share.
Revenue rose to $12.21 billion, up from $9.14 billion a year prior and ahead of analyst expectations for $11.97 billion.
In the Cloud & AI segment, revenue rose 25% to $9.04 billion with a 17% operating profit margin, up from 7% a year prior. The bulk of the segment's gains were driven by server revenue, which rose 35% to $6.8 billion.
The higher operating profit margin reflects internal synergies and the advantages of revenue at scale, Myers said, as well as HPE's ability to pass through higher input costs, especially around memory, to its customers.
Networking revenue surged 75% to $2.89 billion, including a 270% rise in routing revenue to $788 million and a 112% increase in data center networking revenue to $382 million. Campus & branch revenue gained 31% to $1.4 billion. The result comes a year after HPE's Juniper acquisition, and reflects organic growth now that the two companies are operationally integrated, Myers said.
The company also narrowed its full-year revenue growth outlook for the networking business to 73% to 74%, compared with a previous range of 72% to 75%.
For the current fourth quarter, HPE is expecting adjusted earnings between $1.12 and $1.22 a share on revenue of $13.9 billion to $14.8 billion.
Analysts currently expect $1.07 a share in adjusted earnings on $13.01 billion in revenue.