A month has gone by since the last earnings report for IBM (
IBM Quick Quote IBM - Free Report) . Shares have added about 13.9% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is IBM due for a pullback? 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 Q3 Earnings Estimates on Solid Hybrid Cloud Demand IBM reported solid third-quarter 2022 results, wherein both the bottom and the top line 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. 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.
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.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
The consensus estimate has shifted -5.42% due to these changes.
At this time, IBM has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.
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.