Samuel Palmisano recently left as CEO after remaking and diversifying one of the world’s largest technology companies. He may find that he left just ahead of trouble. New chief executive Virginia Rometty has been left to explain to investors why International Business Machine Corp.’s (NYSE: IBM) most recently reported quarter was so bad. Revenue in the third quarter dropped 5% to $24.7 billion. Net income was flat at $3.8 billion. Several of IBM’s largest divisions struggled. Revenue for IBM’s Systems and Technology group was down 13%. Services revenue was down 5%. “In the third quarter, we continued to drive margin, profit and earnings growth through our focus on higher-value businesses, strategic growth initiatives and productivity,” Rometty said when earnings were released. Her comments fell on deaf ears. The day before earnings were announced, IBM traded above $210. Three days later, shares were as low as $193. IBM’s yield is 1.8% now, which may not be enough to entice skeptical investors.
Intel Corp. (NASDAQ: INTC) was another mega-cap tech company that failed to wow investors with its earnings. Since it is the largest provider of chips for personal computers, the market’s anxiety has increased as PC sales have faltered. Intel has, by many counts, three-quarters of the PC business, but nowhere near that in tablets or smartphones, which are seen at the future of the consumer end of the computing market. Intel recently reported quarterly revenue of $13.5 billion, operating income of $3.8 billion, net income of $3.0 billion and earnings per share (EPS) of $0.58. Quarter over previous quarter, revenue and operating income were flat. Net income rose only 5.1%. But the hammer Intel dropped regarded the future: “Our third-quarter results reflected a continuing tough economic environment,” said Paul Otellini, Intel president and CEO. “The world of computing is in the midst of a period of breakthrough innovation and creativity.” Intel has a healthy yield of 4.2%, but its shares trade near a 52-week low.
One more item on the long list of things General Electric Co. (NYSE: GE) needs to do to atone for another mediocre quarter is raise its dividend, which currently offers shareholders a 3.1% yield. Many analysts expected GE would be one of the mega-cap stocks that would turn in less that stellar numbers. And they were right. The day before earnings, the stock traded at more than $23. The day after, it reached a low point of $21.92. Revenue rose only 3% to $36.3 billion year over year. Net earnings rose only 7% to $3.5 billion. With the exception of GE’s big energy infrastructure unit, which posted revenue up by 12%, numbers from the Aviation, Healthcare and the Home & Business Solutions divisions were all weak. In the earnings release, GE Chairman and CEO Jeff Immelt said, “The overall environment remains challenging, but GE continues to execute on our growth strategy.” He appears to be the only person who believes that.
The number two U.S. car company released its earnings toward the tail end of earnings season in the second quarter. If the past quarter and news from Ford’s European operations are any indication, investors are bound to be unhappy, again. Ford Motor Co.’s (NYSE: F) stock is already down from a 52-week high of $13.05 to $10.13. Ford released some good news recently. The manufacturer said its September sales in China reached an all-time record of 59,570, up 35% from the same month last year. Ford, however, falls well behind market leaders General Motors Co. (NYSE: GM) and Volkswagen. In Ford’s most recent quarter, global revenue actually was down, by $2.1 billion to $31.4 billion. Net income dropped by $894 million to $1.38 billion. The damage in Europe was awful. Revenue dropped $1.9 billion to $7.1 billion, and net income fell by $580 million to a loss of $404 million. In June, Ford CFO Robert Shanks said international losses were rising rapidly. The car company will have to offer more than its current 2% yield to remain attractive.
Hewlett-Packard Co. (NYSE: HPQ) may be the most unloved large company trading on any U.S. exchange. CEO Meg Whitman recently said she expects several quarters of falling revenue, which helped push shares to a multiyear low just above $14. HP’s problems used to be seen through the lenses of its management turmoil, which included a parade of CEOs and board members. But current trouble is much greater than that, and begins with the PC industry, of which HP was the global market share leader for some time. Chinese manufacturer Lenovo just took over that spot. In its most recently reported quarter, HP revenue fell 5% to $29.7 billion. The GAAP EPS loss was $4.49, compared to a profit of $0.93 in the same quarter a year ago. HP’s recent 3.6% yield will not do.
Douglas A. McIntyre