Hewlett Packard Enterprise (NYSE:HPE) Beats Q3 Revenue Estimates but Faces Margin Pressure

Hewlett Packard Enterprise Co. (NYSE:HPE) has reported fiscal third-quarter results that surpassed analyst expectations, though the market’s initial reaction has been mixed, with shares declining slightly in after-hours trading.

Strong Revenue Growth and Segment Performance

The company posted revenue of $9.14 billion for the quarter ended July 31, 2025, marking a 19% increase year-over-year and exceeding the consensus estimate of $8.58 billion. This robust growth was largely driven by the company’s recent acquisition of Juniper Networks, which closed on July 2, 2025, and contributed to results for the final month of the quarter. Performance was particularly strong in the Server and Networking segments, which saw revenue increases of 16% and 54%, respectively. Hybrid Cloud and Financial Services also posted growth, underscoring broad-based demand across HPE’s portfolio.

Key financial highlights from the quarter include:

• Annualized revenue run-rate (ARR) of $3.1 billion, up 77% year-over-year
• Non-GAAP diluted earnings per share of $0.44, compared to estimates of $0.43
• Cash flow from operations of $1.3 billion, an increase of $151 million from the prior-year period
• Free cash flow of $790 million, up $121 million year-over-year

Profitability and Margins

While revenue growth was impressive, profitability metrics showed some pressure. GAAP gross margin declined 240 basis points to 29.2%, while non-GAAP gross margin decreased 190 basis points to 29.9%. The company cited increased costs and integration expenses related to the Juniper Networks acquisition as contributing factors to the margin compression.

Operating profit margins varied by segment:

• Server segment operating profit margin of 6.4%, down from 10.8% a year ago
• Networking segment operating profit margin of 20.8%, down from 22.4%
• Hybrid Cloud margin improved to 5.9% from 5.2%

Forward Guidance and Market Reaction

HPE provided optimistic guidance for the fourth quarter, forecasting revenue between $9.7 billion and $10.1 billion, which at the midpoint ($9.9 billion) exceeds analyst expectations of $9.52 billion. The company expects non-GAAP EPS between $0.56 and $0.60 for Q4, compared to estimates of approximately $0.57.

For the full fiscal year 2025, HPE anticipates revenue growth of 14-16% in constant currency and non-GAAP EPS between $1.88 and $1.92. This EPS guidance falls slightly below the analyst consensus of $1.94, which may explain the stock's negative after-hours reaction despite the strong quarterly beat.

Strategic Positioning and Challenges

CEO Antonio Neri emphasized that the company is entering "a new chapter" following the Juniper acquisition, focused on capturing market opportunities in AI, cloud, and networking. The integration appears to be progressing, with management noting early profit accretion and expecting more as synergies are realized.

However, the company faces challenges including margin pressure from competitive markets and integration costs. The substantial goodwill impairment charge of $1.4 billion taken in Q2 related to the Hybrid Cloud segment continues to affect full-year GAAP results, though this is excluded from non-GAAP metrics.

The market's tepid response despite strong results suggests investors may be concerned about the pace of margin recovery and the costs associated with integrating Juniper. The disconnect between strong revenue performance and weaker profitability highlights the competitive pressures in the enterprise technology sector.

For more detailed earnings information and future estimates, readers can review additional data on HPE's earnings page.

Disclaimer: This article is not investment advice. Investors should conduct their own research and consult with a qualified financial advisor before making investment decisions.