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Dell and VMware earnings send stocks in different directions

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Ahead of a planned spinoff of Dell Technologies Inc.’s stake in VMware Inc., both companies reported earnings beats Thursday, but only one saw its stock gain in response.

Dell
DELL,
+0.04%

reported first-quarter earnings of $938 million, or $1.13 a share, on sales of $24.49 billion, up from revenue of $21.95 billion a year ago. After adjusting for share-based compensation and other effects, the company reported earnings of $2.13 a share, up from $1.34 a share last year. Analysts on average expected adjusted earnings of $1.60 a share on sales of $23.4 billion, according to FactSet.

VMware
VMW,
+0.29%
,
which makes virtualization software, reported first-quarter earnings of $425 million, or $1.01 a share, on sales of $2.99 billion, up from $2.73 billion in revenue last year during the same period. After adjusting for stock compensation and other effects, the company reported earnings of $1.76 a share, up from $1.52 a share a year prior. Analysts on average expected adjusted earnings of $1.59 a share on sales of $2.94 billion. VMware had announced preliminary earnings earlier in May, while revealing that Rangarajan Raghuram would be promoted to permanent CEO.

Shares of Dell gained more than 1% in after-hours trading Thursday, while VMware shares fell more than 1%.

Dell acquired an 81% ownership stake in VMware through its $67 billion acquisition of EMC Corp., which closed in 2016. Dell announced its long-awaited decision to spin off that stake last month, though it must wait for the five-year anniversary of the deal closing this fall to make it a tax-free transaction.

For more: VMware to finally come into its own in Dell spinoff, but strategic cloud remains

Dell has benefited from a pandemic-influenced rise in personal-computer sales. The company Thursday reported record sales from its PC division of $13.3 billion, with $3.5 billion attributed to consumer purchases and $9.8 billion to corporate clients. Analysts on average expected sales from the PC division to total $12.7 billion, with consumer sales of $2.94 billion and corporate sales of $9.84 billion, according to FactSet.

Dell’s other major segment is the core EMC business of servers, networking and storage. Dell reported sales of $7.9 billion in that division, referred to as the “Infrastructure Solutions Group,” while analysts on average were projecting $7.53 billion.

Dell stock received a boost from the announcement of VMware spinoff plans, gaining 22.6% in the past three months for a 118.1% increase in the past year. VMware has gained 16.4% in the past three months, but only 15.5% in the past year. The S&P 500 index
SPX,
+0.12%

has increased 10.1% in the past three months and 38.2% in the past year.

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