IBM Earnings Just Can’t Cut It

October 16, 2018 by Chris Lange

International Business Machines Corp. (NYSE: IBM) reported its third quarter financial results after the markets closed on Tuesday. Big Blue said that it had $3.42 in earnings per share (EPS) and $18.8 billion in revenue, compared with consensus estimates that called for $3.40 in EPS and $19.1 billion in revenue. The same period from last year had $3.26 in EPS and $19.15 billion in revenue.

In terms of its segments, IBM reported:

  • Cognitive Solutions (includes solutions software and transaction processing software) — revenues of $4.1 billion, down 6 percent (down 5% adjusting for currency), with growth in Watson health, security solutions, and key strategic areas in analytics.
  • Global Business Services (includes consulting, application management and global process services) — revenues of $4.1 billion, up 1% (up 3% adjusting for currency), led by consulting. Gross profit margin increased 270 basis points.
  • Technology Services & Cloud Platforms (includes infrastructure services, technical support services and integration software) — revenues of $8.3 billion, down 2% (flat year to year adjusting for currency), with growth in cloud revenue. Gross profit margin increased 120 basis points.
  • Systems (includes systems hardware and operating systems software) — revenues of $1.7 billion, up 1% (up 2% adjusting for currency), driven by growth in Power and IBM Z.
  • Global Financing (includes financing and used equipment sales) — revenues of $388 million, down 9% (down 7% adjusting for currency).

Looking ahead to the 2018 full year, the company expects to see EPS of $13.80 and free cash flow of roughly $12 billion, with a realization rate greater than 100%. The consensus estimates call for $13.80 in EPS and $80.17 billion in revenue.

Ginni Rometty, IBM Chairman, President and CEO, commented:

IBM’s progress and momentum this year in the emerging, high-value segments of the IT industry are driven by our innovative technology, deep industry expertise and commitment to trust and security. Our leadership in the technology and services that deliver hybrid cloud, AI, blockchain, analytics and security has helped drive our overall performance, and is helping our clients unleash the full business value of these innovations.

Shares of IBM closed Tuesday at $145.04, with a consensus analyst price target of $163.30 and a 52-week range of $137.45 to $171.13. Following the announcement, the stock was down over 3% at $139.75 in the after-hours trading session.

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