IBM Beats Forecasts With $17.1 Billion Quarter, but Shares Slide as Sales Outlook Holds

IBM posted $17.1 billion in third-quarter revenue on Wednesday, beating Wall Street’s expectations, but its stock fell after the company left its full-year sales forecast unchanged.

Revenue rose 5% from a year earlier, or 6% excluding currency swings, according to IBM. Adjusted earnings were $2.95 a share, up 11%.

Analysts polled by LSEG had expected adjusted earnings of $2.86 a share on revenue of $16.82 billion, CNBC reported.

The stock gained about 4% in Wednesday’s regular session to close at $251.49, then fell about 3.7% to $242.25 after hours, according to Investing.com.

Shares were down about 6% in premarket trading Thursday, Reuters reported. Through Wednesday, the stock had fallen roughly 15% this year while the S&P 500 gained about 13%.

Net income rose to $2.19 billion, or $2.30 a share, from $1.74 billion, or $1.84 a share, a year earlier. A lower tax bill helped, with IBM’s effective tax rate falling to 11.9% from 28.2%.

Software was the strongest unit. Revenue there rose 8% to $7.8 billion, led by 11% growth in Red Hat’s hybrid cloud business and 19% growth in data products, the company said.

Chief Financial Officer James Kavanaugh told Reuters that delayed software deals that rattled investors last quarter were beginning to close. IBM now expects software revenue to grow about 7% to 8% this year, up from 6% to 8%.

Kavanaugh said about a quarter of transaction processing revenue came from deals pushed out of the second quarter and “the remaining 75 per cent is net new business,” Reuters reported.

In July, Chief Executive Arvind Krishna had said IBM “faltered” in adapting to a shift in customer spending toward data-center infrastructure, which triggered the stock’s steepest one-day drop in more than a century, according to Reuters.

Mainframes Slump as Servers Surge

Infrastructure revenue rose 4% to $3.7 billion. Distributed infrastructure, which includes servers and storage, jumped 31%, offsetting a 20% drop in sales of IBM Z mainframes.

Consulting revenue was flat at $5.3 billion. Kavanaugh told analysts that AI work represented “about 30% of our consulting revenue in the quarter and 35% of our backlog,” CNBC reported.

IBM’s adjusted gross margin of 58.5% fell short of the 59.1% consensus compiled by StreetAccount, according to CNBC.

“Disciplined execution throughout the quarter drove accelerated revenue growth and strong free cash flow,” Krishna said in a statement. IBM still expects full-year revenue growth of 4% to 5% at constant currency.

The company raised its free cash flow outlook, now expecting an increase of more than $1 billion from last year, up from a July forecast of about $1 billion. Quarterly free cash flow rose $700 million to $3.0 billion.

Barclays analysts said IBM’s guidance left little additional upside, which could limit near-term enthusiasm for the stock but may position the company to beat expectations later, Reuters reported.

IBM also declared a quarterly dividend of $1.69 a share, payable Dec. 10. The company said it has paid consecutive quarterly dividends every year since 1916.

Content created by Conservative Daily News and some content syndicated through CDN is available for re-publication without charge under the Creative Commons license. Visit our syndication page for details and requirements.