Does IBM Beating Lower Expectations Make for a Real Turnaround?

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International Business Machines Corp. (NYSE: IBM) has been posting earnings that were down and out for so long that it is almost hard to imagine a good earnings report. Financial engineering for earnings has been the company’s main path for longer than most companies.

IBM reported diluted operating earnings of $2.95 per share (EPS), and Big Blue turned in revenues from continuing operations of $20.2 billion. The consensus estimates from Thomson Reuters called for $2.89 in earnings per share on $20.03 billion in revenue. Its results in the same quarter a year ago were $3.84 EPS and $20.81 billion in revenue.

Strategic imperatives revenue was up 12% to $8.3 billion in the second quarter, and cloud revenue was $11.6 billion over the past 12 months. Another boost is that IBM’s cloud as-a-service annual run rate was $6.7 billion in the quarter, which represents a gain of 50% if you look back a year. IBM further said that its strategic imperatives revenue reached $30.7 billion over the trailing 12 months and now represents right at 38% of IBM’s companywide revenues.

The company generated net cash from operating activities of $3.4 billion, and that figure would have been $3.1 billion if excluding the company’s global financing receivables. IBM’s free cash flow was $2.1 billion in the second quarter.

Big Blue spent $1.3 billion in sending dividends back to its shareholders, and it spent $0.8 billion in share repurchases. IBM had $3.9 billion remaining in the current share repurchase authorization as of June 30, and the company ended the second quarter of 2016 with $10.6 billion of cash on hand.

Debt totaled $44.5 billion at the end of the quarter, but that includes IBM’s Global Financing debt of $26.5 billion. Its core outside of financing totaled $18.0 billion.

IBM CEO and Chairman Ginni Rometty said of the quarter:

IBM continues to establish itself as the leading cognitive solutions and cloud platform company. In doing so, IBM is pioneering new business opportunities beyond the traditional IT marketplace. In the second quarter we delivered double-digit revenue growth in our strategic imperatives, driven by innovations in areas such as analytics, security, cloud video services and Watson Health, all powered by the IBM Cloud and differentiated by industry. And we continue to invest for growth with recent breakthroughs in quantum computing, Internet of Things and Blockchain solutions for the IBM Cloud.

Martin Schroeter, IBM’s chief financial officer, said:

In the first half of 2016, we grew our R&D investment, closed 11 acquisitions for more than $5 billion and invested nearly $2 billion in capital expenditures, while returning more than $4 billion to shareholders through dividends and gross share repurchases. These investments are key in helping us build new markets and maintain our leadership in enterprise IT.

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IBM shares closed up eight cents at $159.86 ahead of earnings on Monday, and the premarket trading indicated a gain of about 1.6% at $162.40 on Tuesday morning. Its 52-week trading range is $116.90 to $166.35, but the consensus analyst price target was $144.90.

On a companywide basis, this may not seem like an aggressive turnaround. The problem here is that there was no rapid-fire fix that was known. Maybe beating expectations with lower numbers will just have to constitute as a turnaround for now.