We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
IBM's Q2 Earnings & Revenues Surpass Estimates, Stock Up
Read MoreHide Full Article
International Business Machines Corporation (IBM - Free Report) reported second-quarter 2021 non-GAAP earnings of $2.33 per share, which surpassed the Zacks Consensus Estimate by 3.5% and increased 6.9% on a year-over-year basis.
Revenues of $18.7 billion beat the Zacks Consensus Estimate by 2.7%. The top line also improved 3% (as reported) on a year-over-year basis driven by strength in the company’s hybrid cloud business. Adjusting for currency and divested businesses, revenues remained flat year over year.
Total Cloud revenues were $7 billion during the quarter, up 13% year over year. Adjusting for currency and divested businesses, total cloud revenues increased 9%. The company witnessed solid uptake of cloud-based solutions and digital transformation offerings, driven by synergies from the Red Hat acquisition.
Revenues from services signings increased 8% (at constant currency or cc) to $9.2 billion in the second quarter. However, backlog amounted to $103.7 billion, down 6% at cc (down 3% at actual) on a year-over-year basis.
Following the better-than-expected second-quarter results and year-over-year growth witnessed in the top line, shares of IBM rose as much as 4% in extended trading on Jul 19.
Shares of IBM are up 9.6% compared with the Zacks Computer - Integrated Systems industry’s growth of 8.6% in the year-to-date period.
International Business Machines Corporation Price, Consensus and EPS Surprise
Revenues from Red Hat in the second quarter increased 20% (up 17% at cc) on a normalized basis, driven by strong uptake of Red Hat Enterprise Linux and OpenShift platform. Currently, more than 3,200 clients are using Red Hat and IBM’s hybrid cloud platform.
The buyout helped IBM to enhance containerized software capabilities and accelerate service engagement. Moreover, OpenShift and Ansible supported advancements in application and technology developments.
In the second quarter, Red Hat launched new managed services on OpenShift, including API management, Apache Kafka and Data Science services that make it easier to build next-generation applications on OpenShift.
IBM is also leveraging OpenShift container platform to enable clients to upscale business operations, in a secure manner, via AI-powered Cloud Paks.
Additionally, the digital transformation wave has bolstered adoption of cloud-based QRadar, Identity and Trust services as well as CloudPak for Security offerings.
Geographic Revenue Details
Revenues from Americas increased 3% year over year at cc (excluding divestiture impacts) at $8.8 billion. Revenues from Europe, Middle-East and Africa were $6 billion, down 3% year over year. Meanwhile, revenues from Asia-Pacific totaled $3.9 billion, down 4% on a year-over-year basis.
Cloud & Cognitive Software Segment
Cloud & Cognitive Software segment’s revenues-external improved 6.1% year over year (up 2.5% at cc) to $6.1 billion. Further, cloud revenues (external) surged 25% to $2.1 billion. The upside can be attributed to synergies from the Red Hat acquisition as well as growth in cloud, Data & AI, security and IoT solutions.
Revenues in the Cloud and Data platforms increased 12% year over year (up 8% at cc) to $3.1 billion. The platform is gaining from Red Hat’s acquisition synergies and traction in Cloud Paks suite.
Revenues from the Cognitive Applications increased 12% year over year (up 8% at cc) to $1.4 billion, led by growth in Security and AI applications. Revenues from the Transaction Processing Platforms, which includes software that runs mission-critical workloads, declined 7% (down 11% at cc) on a year-over-year basis to $1.6 billion.
Global Business Services Segment
Revenues in the Global Business Services (GBS) external segment totaled $4.3 billion, which improved 11.6% (up 7.3% at cc) from the year-ago quarter.
Global Process Services revenues improved 25% year over year at cc to $0.3 billion. Application Management revenues improved 1% at cc to $1.8 billion, while Consulting revenues increased 11% at cc to $2.2 billion.
Segmental revenues pertaining to cloud advanced 28% at cc from the prior-year quarter’s reported figure to $2.2 billion.
Global Technology Services Segment
Revenues from Technology Services-external grew 0.4% (but down 4.1% at cc) from the year-ago quarter’s level to $6.3 billion.
Segmental revenues pertaining to cloud declined 5% at cc from the prior-year quarter’s reported figure to $2.4 billion.
Infrastructure & Cloud Services and Technical Support Services revenues declined 4% (at cc) year over year to $4.8 billion and $1.5 billion, respectively.
Systems Segment
Systems revenues-external decreased 7.3% (down 10.2% at cc) on a year-over-year basis to $1.7 billion.
Systems Hardware revenues decreased 10% (at cc) year over year to $1.4 billion. Operating Systems Software declined 12% (at cc) year over year to $0.3 billion.
Markedly, IBM Z revenues declined 13% year over year. Power revenues declined 5% from the year-ago quarter’s levels. Storage revenues declined 10% year over year.
Segmental revenues pertaining to cloud decreased 19% at cc from the prior-year quarter’s reported figure to $0.7 billion.
Finally, Global Financing (includes financing and used equipment sales) revenues-external fell 8.6% year over year (down 11.6% at cc) to $242 million.
Operating Details
Non-GAAP gross margin expanded 30 basis points (bps) year over year and came in at 49.3%. Gross margin benefited from favorable restructuring efforts and high-value software contribution.
Non-GAAP research, development & engineering (R, D&E) expenses increased 4.7% year over year to $1.63 billion.
Non-GAAP selling, general and administration (SG&A) expenses fell 0.9% year over year to $4.92 billion.
Non-GAAP pre-tax income margin from continuing operations was 13.5% compared with year-ago period’s 12.8%.
Balance Sheet & Cash Flow Details
As of Jun 30, 2021, IBM had $8.16 billion in total cash and marketable securities compared with $11.3 billion as of Mar 31, 2021.
As of Jun 30, 2021, total debt (which includes $17.5 billion from Global Financing debt) was $55.2 billion compared with $56.4 billion as of Mar 31, 2021.
The company reported cash flow from operations of $2.6 billion ($1.7 billion when excluding Global Financing receivables) during the second quarter compared with $4.9 billion ($2.1 billion when excluding Global Financing receivables) in the first quarter of 2021.
IBM generated free cash flow of $1 billion in the second quarter compared with $1.5 billion in first-quarter 2021.
Moreover, the company returned $1.5 billion to shareholders in the second quarter through dividends.
Guidance
For 2021, IBM refrained from providing any formal guidance.
Nevertheless, management continues to expect revenues to grow in 2021 based on the current foreign exchange rates. The company also projects adjusted free cash flow between $11 billion and $12 billion in 2021.
Adjusted free cash flow expectations exclude around $3 billion of cash impacts from the company’s structural actions initiated in the fourth quarter of 2020 and the transaction costs associated with the separation of Kyndryl.
Image: Bigstock
IBM's Q2 Earnings & Revenues Surpass Estimates, Stock Up
International Business Machines Corporation (IBM - Free Report) reported second-quarter 2021 non-GAAP earnings of $2.33 per share, which surpassed the Zacks Consensus Estimate by 3.5% and increased 6.9% on a year-over-year basis.
Revenues of $18.7 billion beat the Zacks Consensus Estimate by 2.7%. The top line also improved 3% (as reported) on a year-over-year basis driven by strength in the company’s hybrid cloud business. Adjusting for currency and divested businesses, revenues remained flat year over year.
Total Cloud revenues were $7 billion during the quarter, up 13% year over year. Adjusting for currency and divested businesses, total cloud revenues increased 9%. The company witnessed solid uptake of cloud-based solutions and digital transformation offerings, driven by synergies from the Red Hat acquisition.
Revenues from services signings increased 8% (at constant currency or cc) to $9.2 billion in the second quarter. However, backlog amounted to $103.7 billion, down 6% at cc (down 3% at actual) on a year-over-year basis.
Following the better-than-expected second-quarter results and year-over-year growth witnessed in the top line, shares of IBM rose as much as 4% in extended trading on Jul 19.
Shares of IBM are up 9.6% compared with the Zacks Computer - Integrated Systems industry’s growth of 8.6% in the year-to-date period.
International Business Machines Corporation Price, Consensus and EPS Surprise
International Business Machines Corporation price-consensus-eps-surprise-chart | International Business Machines Corporation Quote
Red Hat Acquisition Aids Top-Line Growth
Revenues from Red Hat in the second quarter increased 20% (up 17% at cc) on a normalized basis, driven by strong uptake of Red Hat Enterprise Linux and OpenShift platform. Currently, more than 3,200 clients are using Red Hat and IBM’s hybrid cloud platform.
The buyout helped IBM to enhance containerized software capabilities and accelerate service engagement. Moreover, OpenShift and Ansible supported advancements in application and technology developments.
In the second quarter, Red Hat launched new managed services on OpenShift, including API management, Apache Kafka and Data Science services that make it easier to build next-generation applications on OpenShift.
IBM is also leveraging OpenShift container platform to enable clients to upscale business operations, in a secure manner, via AI-powered Cloud Paks.
Additionally, the digital transformation wave has bolstered adoption of cloud-based QRadar, Identity and Trust services as well as CloudPak for Security offerings.
Geographic Revenue Details
Revenues from Americas increased 3% year over year at cc (excluding divestiture impacts) at $8.8 billion. Revenues from Europe, Middle-East and Africa were $6 billion, down 3% year over year. Meanwhile, revenues from Asia-Pacific totaled $3.9 billion, down 4% on a year-over-year basis.
Cloud & Cognitive Software Segment
Cloud & Cognitive Software segment’s revenues-external improved 6.1% year over year (up 2.5% at cc) to $6.1 billion. Further, cloud revenues (external) surged 25% to $2.1 billion. The upside can be attributed to synergies from the Red Hat acquisition as well as growth in cloud, Data & AI, security and IoT solutions.
Revenues in the Cloud and Data platforms increased 12% year over year (up 8% at cc) to $3.1 billion. The platform is gaining from Red Hat’s acquisition synergies and traction in Cloud Paks suite.
Revenues from the Cognitive Applications increased 12% year over year (up 8% at cc) to $1.4 billion, led by growth in Security and AI applications. Revenues from the Transaction Processing Platforms, which includes software that runs mission-critical workloads, declined 7% (down 11% at cc) on a year-over-year basis to $1.6 billion.
Global Business Services Segment
Revenues in the Global Business Services (GBS) external segment totaled $4.3 billion, which improved 11.6% (up 7.3% at cc) from the year-ago quarter.
Global Process Services revenues improved 25% year over year at cc to $0.3 billion. Application Management revenues improved 1% at cc to $1.8 billion, while Consulting revenues increased 11% at cc to $2.2 billion.
Segmental revenues pertaining to cloud advanced 28% at cc from the prior-year quarter’s reported figure to $2.2 billion.
Global Technology Services Segment
Revenues from Technology Services-external grew 0.4% (but down 4.1% at cc) from the year-ago quarter’s level to $6.3 billion.
Segmental revenues pertaining to cloud declined 5% at cc from the prior-year quarter’s reported figure to $2.4 billion.
Infrastructure & Cloud Services and Technical Support Services revenues declined 4% (at cc) year over year to $4.8 billion and $1.5 billion, respectively.
Systems Segment
Systems revenues-external decreased 7.3% (down 10.2% at cc) on a year-over-year basis to $1.7 billion.
Systems Hardware revenues decreased 10% (at cc) year over year to $1.4 billion. Operating Systems Software declined 12% (at cc) year over year to $0.3 billion.
Markedly, IBM Z revenues declined 13% year over year. Power revenues declined 5% from the year-ago quarter’s levels. Storage revenues declined 10% year over year.
Segmental revenues pertaining to cloud decreased 19% at cc from the prior-year quarter’s reported figure to $0.7 billion.
Finally, Global Financing (includes financing and used equipment sales) revenues-external fell 8.6% year over year (down 11.6% at cc) to $242 million.
Operating Details
Non-GAAP gross margin expanded 30 basis points (bps) year over year and came in at 49.3%. Gross margin benefited from favorable restructuring efforts and high-value software contribution.
Non-GAAP research, development & engineering (R, D&E) expenses increased 4.7% year over year to $1.63 billion.
Non-GAAP selling, general and administration (SG&A) expenses fell 0.9% year over year to $4.92 billion.
Non-GAAP pre-tax income margin from continuing operations was 13.5% compared with year-ago period’s 12.8%.
Balance Sheet & Cash Flow Details
As of Jun 30, 2021, IBM had $8.16 billion in total cash and marketable securities compared with $11.3 billion as of Mar 31, 2021.
As of Jun 30, 2021, total debt (which includes $17.5 billion from Global Financing debt) was $55.2 billion compared with $56.4 billion as of Mar 31, 2021.
The company reported cash flow from operations of $2.6 billion ($1.7 billion when excluding Global Financing receivables) during the second quarter compared with $4.9 billion ($2.1 billion when excluding Global Financing receivables) in the first quarter of 2021.
IBM generated free cash flow of $1 billion in the second quarter compared with $1.5 billion in first-quarter 2021.
Moreover, the company returned $1.5 billion to shareholders in the second quarter through dividends.
Guidance
For 2021, IBM refrained from providing any formal guidance.
Nevertheless, management continues to expect revenues to grow in 2021 based on the current foreign exchange rates. The company also projects adjusted free cash flow between $11 billion and $12 billion in 2021.
Adjusted free cash flow expectations exclude around $3 billion of cash impacts from the company’s structural actions initiated in the fourth quarter of 2020 and the transaction costs associated with the separation of Kyndryl.
Zacks Rank & Stocks to Consider
IBM currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader technology sector are Apple (AAPL - Free Report) , Alphabet (GOOGL - Free Report) and Garmin Ltd. (GRMN - Free Report) , each carring a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Apple and Alphabet are set to release quarterly earnings on Jul 27, while Garmin is scheduled to report on Jul 28.