Why IBM Earnings Got the Big Blues

International Business Machines Corp. (NYSE: IBM) reported fourth-quarter and full-year 2017 results after markets closed Thursday. For the quarter, the technology giant company posted adjusted diluted earnings per share (EPS) of $5.18 on revenues of $22.54 billion. In the same period a year ago, the company reported EPS of $5.01 on revenues of $21.77 billion. The quarterly results also compare to the Thomson Reuters consensus estimates for EPS of $5.17 and $22.05 billion in revenues.

For the full year, IBM reported $13.80 in EPS and revenues of $79.14 billion, compared with EPS of $13.59 on $79.92 billion in revenues in 2016. Analysts had estimated EPS of $13.81 and revenues of $78.62 billion.

Adjusted earnings do not include a $5.5 billion noncash charge related to the new U.S. tax law. Including the charge, IBM posted a fourth-quarter loss of $1.14 per share, compared with GAAP EPS of $4.74 in 2016.

CEO Ginni Rometty said:

Our strategic imperatives revenue again grew at a double-digit rate and now represents 46 percent of our total revenue, and we are pleased with our overall revenue growth in the quarter. During 2017, we strengthened our position as the leading enterprise cloud provider and established IBM as the blockchain leader for business. Looking ahead, we are uniquely positioned to help clients use data and AI to build smarter businesses.

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IBM’s operating (non-GAAP) tax rate, which excludes the one-time charge, was 6% for the fourth quarter and 7% for the full year, which includes the effect of discrete tax benefits in the first and second quarters.

The company generated full-year free cash flow of $13 billion, excluding Global Financing receivables. The company returned $9.8 billion to shareholders through $5.5 billion in dividends and $4.3 billion share buybacks.

The company said it would provide guidance during its conference call. Analysts are looking for first-quarter EPS of $2.28 and revenues of $18.42. For the 2018 fiscal year, the consensus estimates call for EPS of $13.92 and revenues of $78.8 billion.

We noted earlier today that there were certain things to watch for when Big Blue reported this afternoon. Given the direction of the stock price, not a lot of boxes got checked.

IBM’s shares are trading down nearly 4% in the after-hours session Thursday, at $162.44 in a 52-week range of $139.13 to $182.79. The 12-month consensus price target on the stock is $166.95.

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