Should IBM Get More Credit for Q2 Earnings?

Technology

Published: July 18, 2018 4:19 pm

Last Updated: January 11, 2020 8:48 pm

International Business Machines Corp. (NYSE: IBM) reported second-quarter financial results after markets closed Wednesday. The company said that it had $3.08 in earnings per share (EPS) on $20.0 billion in revenue, which compared with consensus estimates that called for $3.04 in EPS on $19.88 billion in revenue. The same period of last year reportedly had EPS of $2.94 and $19.29 billion in revenue.

In terms of its segments, IBM reported:

Cognitive Solutions (includes solutions software and transaction processing software) — revenues of $4.6 billion, flat year to year (down 1 percent adjusting for currency), with growth in analytics and industry vertical solutions led by financial services and IoT.

Global Business Services (includes consulting, global process services and application management) — revenues of $4.2 billion, up 2 percent (flat year to year adjusting for currency), with growth in consulting driven by digital offerings.

Technology Services & Cloud Platforms (includes infrastructure services, technical support services and integration software) — revenues of $8.6 billion, up 2 percent (flat year to year adjusting for currency). Strategic imperatives revenue grew 26 percent, led by hybrid cloud services, security and mobile.

Systems (includes systems hardware and operating systems software) — revenues of $2.2 billion, up 25 percent (up 23 percent adjusting for currency) driven by growth in IBM Z, Power Systems and storage.

Global Financing (includes financing and used equipment sales) — revenues of $394 million, down 5 percent (down 6 percent adjusting for currency).

Looking ahead to the full year, the company expects to see EPS of $13.80, with free cash flow of roughly $12 billion. The consensus estimates call for $13.78 in EPS and $80.47 billion in revenue.

Ginni Rometty, IBM chair, president and CEO, commented:

We delivered strong revenue and profit growth in the quarter, underscoring IBM’s progress and momentum in the emerging, high-value segments of the IT industry. More clients are engaging IBM on their journey to the cloud, and deploying IBM Cloud, Watson AI, analytics, blockchain and security solutions. This demonstrates IBM’s unique leadership in providing innovative technology coupled with deep industry expertise, trust and security.

Shares of IBM closed the day at $144.50, with a consensus analyst price target of $165.47 and a 52-week trading range of $137.45 to $171.13. Following the announcement, the stock was up 1% at $146.46 in the after-hours session.