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IBM Tops Q3 Earnings Estimates on Solid Hybrid Cloud Demand
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International Business Machines Corporation (IBM - Free Report) reported solid third-quarter 2022 results, wherein both the bottom and the top lines beat the Zacks Consensus Estimate.
Net Income
On a GAAP basis, the net loss from continuing operations was $3,214 million or a loss of $3.55 per share against restated net income of $1,037 million or $1.14 per share in the year-ago quarter. The sharp decline was primarily attributable to a one-time, non-cash pension settlement charge of $5.9 billion ($4.4 billion net of tax) during third-quarter 2022.
Excluding non-recurring items, non-GAAP net income was $1.81 per share compared with the restated tally of $1.84 per share in the prior-year quarter. The bottom line beat the Zacks Consensus Estimate by 3 cents.
International Business Machines Corporation Price, Consensus and EPS Surprise
Quarterly total revenues increased to $14,107 million from the restated figure of $13,251 million in the prior year, 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 $7,430 million compared with $7,106 million in the prior-year quarter, resulting in respective gross margins of 52.7% and 53.6%. Total expenses increased significantly to $11,931 million from $6,293 million, owing to a non-cash pension settlement charge of $5.9 billion.
Segmental Performance
Software: Revenues improved to $5,811 million from $5,406 million, driven by growth in Hybrid Platform & Solutions and Transaction Processing. Segment pre-tax income from continuing operations was $1,306 million compared with $990 million in the year-ago quarter for respective margins of 22.5% and 18.3%. The company is witnessing healthy hybrid cloud adoption by clients, adding more than 200 clients in the third quarter, bringing the tally of hybrid cloud clients to more than 4,000.
Consulting: Revenues were $4,700 million, up from $4,457 million, led by pervasive growth driven by demand for digital transformation, growing revenues and signings at double-digit rates across all business lines and regions. Segment pre-tax income was $462 million compared with $466 million in the year-ago quarter for respective margins of 9.8% and 10.5%.
Infrastructure: Revenues were $3,352 million, up from $2,921 million, due to higher Hybrid Infrastructure revenues and continuous adoption of z16 mainframe – an open, agile platform that integrates into a hybrid cloud environment with industry-leading security, data privacy and latency. Segment pre-tax income was $280 million compared with $209 million in the year-ago quarter for respective margins of 8.3% and 7.1%.
Financing: Revenues were $174 million, down from $184 million due to the challenging macroeconomic environment. Segment pre-tax income was $79 million compared with $132 million in the year-ago quarter for respective margins of 45.4% and 71.7%.
Cash Flow & Liquidity
During the third quarter, IBM generated $1,901 million in cash from operations compared with $2,713 million in the year-ago quarter, bringing the respective tallies for the first nine months of 2022 and 2021 to $6,470 million and $10,252 million. Free cash flow was $752 million in the quarter, up from $603 million in the prior-year period. As of Sep 30, 2022, the company had $7,816 million in cash and cash equivalents with $44,942 million of long-term debt.
Outlook
For full-year 2022, the company expects revenue growth above the mid-single-digit range. Free cash flow is estimated to be in the vicinity of $10 billion.
Sierra Wireless has a long-term earnings growth expectation of 15% and delivered an earnings surprise of 229.9%, on average, in the trailing four quarters. Over the past year, the stock has gained 77.8%. Earnings estimates for the current year have moved up 4400% since October 2021. Sierra Wireless continues to launch innovative products for business-critical operations that require high security and optimum 5G performance.
InterDigital, Inc. (IDCC - Free Report) , sporting a Zacks Rank #1, is another key pick for investors. It has a long-term earnings growth expectation of 25% and delivered a stellar earnings surprise of 81.9%, on average, in the trailing four quarters.
InterDigital is focused on pursuing agreements with unlicensed customers in the handset and consumer electronics markets. The company aims to become a leading designer and developer of technology solutions and innovation for the mobile industry, IoT and allied technology areas. InterDigital’s global footprint, diversified product portfolio and ability to penetrate different markets are impressive.
Aviat Networks, Inc. (AVNW - Free Report) sports a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has been revised 23.3% upward since October 2021.
Aviat Networks pulled off a trailing four-quarter earnings surprise of 15.9%, on average. It has soared 158.3% in the past two years.
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IBM Tops Q3 Earnings Estimates on Solid Hybrid Cloud Demand
International Business Machines Corporation (IBM - Free Report) reported solid third-quarter 2022 results, wherein both the bottom and the top lines beat the Zacks Consensus Estimate.
Net Income
On a GAAP basis, the net loss from continuing operations was $3,214 million or a loss of $3.55 per share against restated net income of $1,037 million or $1.14 per share in the year-ago quarter. The sharp decline was primarily attributable to a one-time, non-cash pension settlement charge of $5.9 billion ($4.4 billion net of tax) during third-quarter 2022.
Excluding non-recurring items, non-GAAP net income was $1.81 per share compared with the restated tally of $1.84 per share in the prior-year quarter. The bottom line beat the Zacks Consensus Estimate by 3 cents.
International Business Machines Corporation Price, Consensus and EPS Surprise
International Business Machines Corporation price-consensus-eps-surprise-chart | International Business Machines Corporation Quote
Quarter Details
Quarterly total revenues increased to $14,107 million from the restated figure of $13,251 million in the prior year, 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 $7,430 million compared with $7,106 million in the prior-year quarter, resulting in respective gross margins of 52.7% and 53.6%. Total expenses increased significantly to $11,931 million from $6,293 million, owing to a non-cash pension settlement charge of $5.9 billion.
Segmental Performance
Software: Revenues improved to $5,811 million from $5,406 million, driven by growth in Hybrid Platform & Solutions and Transaction Processing. Segment pre-tax income from continuing operations was $1,306 million compared with $990 million in the year-ago quarter for respective margins of 22.5% and 18.3%. The company is witnessing healthy hybrid cloud adoption by clients, adding more than 200 clients in the third quarter, bringing the tally of hybrid cloud clients to more than 4,000.
Consulting: Revenues were $4,700 million, up from $4,457 million, led by pervasive growth driven by demand for digital transformation, growing revenues and signings at double-digit rates across all business lines and regions. Segment pre-tax income was $462 million compared with $466 million in the year-ago quarter for respective margins of 9.8% and 10.5%.
Infrastructure: Revenues were $3,352 million, up from $2,921 million, due to higher Hybrid Infrastructure revenues and continuous adoption of z16 mainframe – an open, agile platform that integrates into a hybrid cloud environment with industry-leading security, data privacy and latency. Segment pre-tax income was $280 million compared with $209 million in the year-ago quarter for respective margins of 8.3% and 7.1%.
Financing: Revenues were $174 million, down from $184 million due to the challenging macroeconomic environment. Segment pre-tax income was $79 million compared with $132 million in the year-ago quarter for respective margins of 45.4% and 71.7%.
Cash Flow & Liquidity
During the third quarter, IBM generated $1,901 million in cash from operations compared with $2,713 million in the year-ago quarter, bringing the respective tallies for the first nine months of 2022 and 2021 to $6,470 million and $10,252 million. Free cash flow was $752 million in the quarter, up from $603 million in the prior-year period. As of Sep 30, 2022, the company had $7,816 million in cash and cash equivalents with $44,942 million of long-term debt.
Outlook
For full-year 2022, the company expects revenue growth above the mid-single-digit range. Free cash flow is estimated to be in the vicinity of $10 billion.
Zacks Rank & Stocks to Consider
IBM currently carries a Zacks Rank #4 (Sell). A better-ranked stock in the broader industry is Sierra Wireless, Inc. , carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Sierra Wireless has a long-term earnings growth expectation of 15% and delivered an earnings surprise of 229.9%, on average, in the trailing four quarters. Over the past year, the stock has gained 77.8%. Earnings estimates for the current year have moved up 4400% since October 2021. Sierra Wireless continues to launch innovative products for business-critical operations that require high security and optimum 5G performance.
InterDigital, Inc. (IDCC - Free Report) , sporting a Zacks Rank #1, is another key pick for investors. It has a long-term earnings growth expectation of 25% and delivered a stellar earnings surprise of 81.9%, on average, in the trailing four quarters.
InterDigital is focused on pursuing agreements with unlicensed customers in the handset and consumer electronics markets. The company aims to become a leading designer and developer of technology solutions and innovation for the mobile industry, IoT and allied technology areas. InterDigital’s global footprint, diversified product portfolio and ability to penetrate different markets are impressive.
Aviat Networks, Inc. (AVNW - Free Report) sports a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has been revised 23.3% upward since October 2021.
Aviat Networks pulled off a trailing four-quarter earnings surprise of 15.9%, on average. It has soared 158.3% in the past two years.