It has been about a month since the last earnings report for IBM (IBM Quick QuoteIBM - Free Report) . Shares have lost about 3.9% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is IBM due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

IBM Tops Q1 Earnings Estimates on Hybrid Cloud and AI Demand

International Business Machines Corporation reported impressive first-quarter 2022 results, wherein both the bottom and the top lines beat the Zacks Consensus Estimate.

Net Income

On a GAAP basis, net income from continuing operations was $662 million or 73 cents per share compared with $403 million or 45 cents per share in the year-ago quarter. The improvement mainly resulted from higher aggregate revenues.

Non-GAAP net income was $1.40 per share compared with $1.12 per share in the prior-year quarter. The bottom line beat the Zacks Consensus Estimate by 6 cents.

Quarter Details

Quarterly total revenues increased 7.7% year over year to $14,197 million, backed by strong demand for hybrid cloud and AI, driving growth in Software and Consulting. The top line surpassed the consensus estimate of $13,734 million.

Gross profit was $7,335 million compared with $7,027 million in the prior-year quarter, resulting in respective gross margins of 51.7% and 53.3%. Total expenses declined to $6,712 million from $6,784 million.

Segmental Performance

Software: Revenues improved to $5,772 million from $5,138 million, driven by growth in Hybrid Platform & Solutions and Transaction Processing. Segment pre-tax income was $1,134 million compared with $658 million in the year-ago quarter for respective margins of 19.7% and 12.8%.

Consulting: Revenues were $4,829 million, up from $4,262 million, led by a strong demand profile, growing revenues and signings at double-digit rates across all business lines and regions. Segment pre-tax income was $348 million compared with $277 million in the year-ago quarter for respective margins of 7.2% and 6.5%.

Infrastructure: Revenues were $3,219 million, down from $3,293 million, due to lower Hybrid Infrastructure revenues. Segment pre-tax income was $199 million compared with $292 million in the year-ago quarter for respective margins of 6.2% and 8.9%.

Financing: Revenues were $154 million, down from $208 million due to the challenging macroeconomic environment. Segment pre-tax income was $84 million compared with $98 million in the year-ago quarter for respective margins of 54.6% and 47%.

Cash Flow & Liquidity

During the first quarter of 2022, IBM generated $3,248 million in cash from operations compared with $4,914 million in the year-ago quarter. Free cash flow was $1,240 million, down from $1,522 million.

As of Mar 31, 2022, the company had $9,934 million in cash and cash equivalents with $46,545 million of long-term debt.

Outlook

For full-year 2022, the company expects revenue growth at the high end of the mid-single-digit range. Free cash flow is estimated to be $10-10.5 billion.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

The consensus estimate has shifted -6.39% due to these changes.

VGM Scores

Currently, IBM has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, IBM has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.