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IBM (IBM) Up 1.7% Since Last Earnings Report: Can It Continue?
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It has been about a month since the last earnings report for IBM (IBM - Free Report) . Shares have added about 1.7% 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 its most recent earnings report in order to get a better handle on the important drivers.
IBM Q2 Earnings Beat, Revenues Miss Despite Cloud Demand
IBM reported mixed second-quarter 2023 results, wherein the bottom line beat the Zacks Consensus Estimate but the top line missed the same. However, the company witnessed healthy demand for hybrid cloud and AI solutions with a client-focused portfolio and broad-based growth.
Net Income
On a GAAP basis, net income from continuing operations was $1,581 million or $1.72 per share compared with $1,465 million or $1.61 per share in the year-ago quarter. The improvement in GAAP earnings was primarily attributable to top-line growth and lower operating expenses.
Excluding non-recurring items, non-GAAP net income from continuing operations was $2.18 per share compared with $2.31 in the prior-year quarter. The bottom line beat the Zacks Consensus Estimate by 18 cents.
Quarter Details
Quarterly total revenues decreased to $15,475 million from $15,535 million despite strong demand for hybrid cloud and AI, driving growth in the Software and Consulting segments. On a constant currency basis, revenues were up 0.4% year over year. The top line missed the consensus estimate of $15,541 million.
Gross profit was $8,501 million compared with $8,290 million in the prior-year quarter, resulting in respective gross margins of 54.9% and 53.4% owing to a strong portfolio mix. Total expenses decreased to $6,501 million from $6,568 million, driven by improvement in the business mix and ongoing productivity initiatives.
Segmental Performance
Software: Revenues improved to $6,608 million from $6,166 million, driven by growth in Hybrid Platform & Solutions, Red Hat, Data & AI and Transaction Processing. The reported segment revenues exceeded the consensus estimate of $6,352 million owing to solid hybrid cloud traction. Segment pre-tax income from continuing operations was $1,504 million compared with $1,375 million in the year-ago quarter for respective margins of 22.8% and 22.3%. The company is witnessing healthy hybrid cloud adoption by clients and solid demand trends across RedHat, automation and Data & AI.
Consulting: Revenues were $5,013 million, up from $4,809 million, led by pervasive growth driven by demand for digital transformation, increasing revenues across all business lines and regions. The reported segment revenues exceeded the consensus estimate of $4,903 million. Segment pre-tax income was $446 million compared with $343 million in the year-ago quarter, driven by productivity enhancement initiatives for respective margins of 8.9% and 7.1%.
Infrastructure: Revenues were $3,618 million, down from $4,235 million, owing to lower demand for zSystems and Distributed Infrastructure and support services. Segment pre-tax income was $633 million compared with $757 million in the year-ago quarter for respective margins of 17.5% and 17.9%.
Financing: Revenues improved to $185 million from $146 million. Segment pre-tax income was $64 million compared with $102 million in the year-ago quarter for respective margins of 34.9% and 69.7%.
Cash Flow & Liquidity
During the second quarter, IBM generated $2,638 million in cash from operations compared with $1,321 million in the year-ago quarter, bringing the respective tallies for the first six months of 2023 and 2022 to $6,412 million and $4,569 million. Free cash flow was $2,101 million in the quarter, up from $2,091 million in the prior-year period, driven by higher profit and working capital efficiencies. As of Jun 30, 2023, the company had $9,394 million in cash and cash equivalents with $50,691 million of long-term debt.
Outlook
For full-year 2023, the company expects 3-5% revenue growth on a constant currency basis. Free cash flow is estimated to be approximately $10.5 billion.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates review.
VGM Scores
At this time, IBM has a subpar Growth Score of D, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, IBM has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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IBM (IBM) Up 1.7% Since Last Earnings Report: Can It Continue?
It has been about a month since the last earnings report for IBM (IBM - Free Report) . Shares have added about 1.7% 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 its most recent earnings report in order to get a better handle on the important drivers.
IBM Q2 Earnings Beat, Revenues Miss Despite Cloud Demand
IBM reported mixed second-quarter 2023 results, wherein the bottom line beat the Zacks Consensus Estimate but the top line missed the same. However, the company witnessed healthy demand for hybrid cloud and AI solutions with a client-focused portfolio and broad-based growth.
Net Income
On a GAAP basis, net income from continuing operations was $1,581 million or $1.72 per share compared with $1,465 million or $1.61 per share in the year-ago quarter. The improvement in GAAP earnings was primarily attributable to top-line growth and lower operating expenses.
Excluding non-recurring items, non-GAAP net income from continuing operations was $2.18 per share compared with $2.31 in the prior-year quarter. The bottom line beat the Zacks Consensus Estimate by 18 cents.
Quarter Details
Quarterly total revenues decreased to $15,475 million from $15,535 million despite strong demand for hybrid cloud and AI, driving growth in the Software and Consulting segments. On a constant currency basis, revenues were up 0.4% year over year. The top line missed the consensus estimate of $15,541 million.
Gross profit was $8,501 million compared with $8,290 million in the prior-year quarter, resulting in respective gross margins of 54.9% and 53.4% owing to a strong portfolio mix. Total expenses decreased to $6,501 million from $6,568 million, driven by improvement in the business mix and ongoing productivity initiatives.
Segmental Performance
Software: Revenues improved to $6,608 million from $6,166 million, driven by growth in Hybrid Platform & Solutions, Red Hat, Data & AI and Transaction Processing. The reported segment revenues exceeded the consensus estimate of $6,352 million owing to solid hybrid cloud traction. Segment pre-tax income from continuing operations was $1,504 million compared with $1,375 million in the year-ago quarter for respective margins of 22.8% and 22.3%. The company is witnessing healthy hybrid cloud adoption by clients and solid demand trends across RedHat, automation and Data & AI.
Consulting: Revenues were $5,013 million, up from $4,809 million, led by pervasive growth driven by demand for digital transformation, increasing revenues across all business lines and regions. The reported segment revenues exceeded the consensus estimate of $4,903 million. Segment pre-tax income was $446 million compared with $343 million in the year-ago quarter, driven by productivity enhancement initiatives for respective margins of 8.9% and 7.1%.
Infrastructure: Revenues were $3,618 million, down from $4,235 million, owing to lower demand for zSystems and Distributed Infrastructure and support services. Segment pre-tax income was $633 million compared with $757 million in the year-ago quarter for respective margins of 17.5% and 17.9%.
Financing: Revenues improved to $185 million from $146 million. Segment pre-tax income was $64 million compared with $102 million in the year-ago quarter for respective margins of 34.9% and 69.7%.
Cash Flow & Liquidity
During the second quarter, IBM generated $2,638 million in cash from operations compared with $1,321 million in the year-ago quarter, bringing the respective tallies for the first six months of 2023 and 2022 to $6,412 million and $4,569 million. Free cash flow was $2,101 million in the quarter, up from $2,091 million in the prior-year period, driven by higher profit and working capital efficiencies. As of Jun 30, 2023, the company had $9,394 million in cash and cash equivalents with $50,691 million of long-term debt.
Outlook
For full-year 2023, the company expects 3-5% revenue growth on a constant currency basis. Free cash flow is estimated to be approximately $10.5 billion.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates review.
VGM Scores
At this time, IBM has a subpar Growth Score of D, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, IBM has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.