IBM Manages to Disappoint With Earnings in Recessions Too

International Business Machines Corp. (NYSE: IBM) was one of the old-school technology companies that truly needed the COVID-19 pandemic not to bring a deep recession. IBM already had a hard enough of a time finding growth in recent years during a strong economy. That means it’s going to be that much harder for IBM to win in hard times.

IBM reported earnings after the close of trading on Monday showing a 3.4% drop in revenues to $17.6 billion. The company did claim that the revenue drop was actually a gain of 0.1% if it adjusted for divested operations and for currency. The company’s earnings from operations came to $1.84 per share.

Refinitiv had consensus estimates of $1.79 in earnings per share and $17.72 billion in revenues. While the earnings report was above expectations, a return to declining revenues only spells that much trouble for IBM.

The segment for Cloud & Cognitive Software was up 5%, or up 7% adjusted for currency. Its Systems revenues were up by 3%, or up 4% if adjusted currency. IBM’s Global Business Services saw flat revenues from a year ago, but that was still up 1% after adjusting for currency.

IBM further showed that its total cloud revenue rose 19% to $5.4 billion, but that would be up 23% if adjusted for divested businesses and for currency. The company’s revenues from its 2019 acquisition of Red Hat were up 18%, which would have been up 20% if adjusting for currency.

While IBM did post improvements in operating margin and net margin, IBM also said it was withdrawing full-year 2020 guidance in light of the COVID-19 impact on the economy.

IBM generated net cash from operating activities of $4.5 billion in its first quarter, but that would have been $2.1 billion excluding Global Financing receivables. The company’s free cash flow was $1.4 billion and it returned $1.4 billion to shareholders via dividends. IBM showed its liquidity position at the end of the first quarter as $12.0 billion in cash, while its total debt of $64.3 billion, including $22.3 billion in Global Financing debt, was down $8.7 billion since the end of the second-quarter 2019.

IBM stock closed up 0.2% at $120.41 on Monday, but the shares were down 2.9% at $116.90 in Monday’s after-hours trading session. IBM has a 52-week range of $90.56 to $158.75, and its consensus analyst target price from Refinitiv was $131.24.

Arvind Krishna, IBM’s new CEO, said:

IBM remains focused on helping our clients adapt to the immediate challenges of the COVID-19 pandemic, while we continue to enable them to shift their mission-critical workloads to hybrid cloud and expand their use of AI to help transform their operations. Our first-quarter performance in cloud is a reflection of the trust clients place in IBM’s technology and expertise today, and positions us to continue building an enduring hybrid cloud platform for the future.

James Kavanaugh, IBM’s chief financial officer, said:

Our recurring revenue stream, continued gross profit margin expansion and strong balance sheet and liquidity position remain stabilizing elements in an unprecedented business climate. We’ve taken actions within our business to provide the necessary flexibility and operating efficiency for the current environment.