IBM Company Earnings Bring Cheers, but Big Blue Has No Real Growth

IBM said that it is raising its 2013 operating earnings per share guidance by $0.20 to $16.90 per share. This is excluding its $1 billion workforce rebalancing (layoff) charges. Thomson Reuters has the consensus earnings estimate for 2013 of $16.64 per share.

One key metric we focus on is the services backlog. This backlog was up by 3% to $141 billion, but the backlog would have been up 7% if you adjust for currency changes. Other metrics are as follows:

• Services revenue was down 4%, but down only 1% adjusting for currency (globally would be up 2% if adjusting for currency).
• Systems and Technology revenue was down 12%, or down 11% if you adjust for currency.
• Growth markets revenue was flat, but up 1% adjusting for currency.
• Business Analytics revenue was up 11%.
• The Smarter Planet revenue was up over 25% in the first half and IBM’s Cloud revenue was up more over 70% in the first half.
• Total operating gross profit margin was 49.7% in the quarter compared with 48.2% a year ago.
• The non-GAAP tax rate was 22.0%, down 3 points compared to the year-ago period.
• The weighted-average number of diluted common shares outstanding in the second-quarter 2013 was 1.11 billion compared with 1.16 billion shares in the same period of 2012.
• Cash: IBM ended the quarter with $10.4 billion of cash on hand and generated free cash flow of $2.7 billion.
• Buybacks: IBM says it returned $4.6 billion to shareholders, with $1 billion in dividends and $3.6 billion via share repurchases.

IBM shares closed up 0.3% at $194.50 against a 52-week trading range of $183.55 to $215.90. The stock is indicated up over 2% at $199.10 in the after-hours trading session. This is a beat on earnings but is light on sales, a trend we are seeing more and more of.

This stock may be higher based upon Wall Street and investors looking at the bottom-line numbers and the guidance based upon buybacks. We are encouraged about a strong services backlog remaining in place, but there is still one very obvious situation: IBM just cannot find any systemic growth that offers a compelling story here.

We also have shown over and over how and why IBM also needs to step up to the plate regarding its paltry dividend yield as well. Buybacks have outshined dividends in our latest analysis using buyback versus dividend ETFs, but the buyback in this case of IBM is only holding its shares up rather than driving shares higher.