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Why Is IBM (IBM) Down 3.3% Since Last Earnings Report?
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It has been about a month since the last earnings report for IBM (IBM - Free Report) . Shares have lost about 3.3% in that time frame, underperforming 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 its most recent earnings report in order to get a better handle on the important drivers.
IBM Beats Q4 Earnings Estimates on Solid AI, Cloud Demand
IBM ended 2023 on a positive note with strong fourth-quarter results, wherein both the top and bottom lines beat the respective Zacks Consensus Estimate. 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 $3,285 million or $3.54 per share compared with $2,711 million or $3.13 per share in the year-ago quarter. The improvement in GAAP earnings was primarily attributable to top-line growth.
Excluding non-recurring items, non-GAAP net income from continuing operations was $3.87 per share compared with $3.60 in the prior-year quarter. The bottom line beat the Zacks Consensus Estimate by 9 cents.
For 2023, GAAP net income from continuing operations was $7,514 million or $8.15 per share compared with $1,783 million or $1.95 per share in 2022. Non-GAAP net income from continuing operations was $9.62 per share compared with $9.13 in 2022.
Quarter Details
Quarterly total revenues increased to $17,381 million from $16,690 million on strong demand for hybrid cloud and AI, driving growth in the Software and Consulting segments. On a constant currency basis, revenues were up 3% year over year. The top line beat the consensus estimate of $17,279 million.
Gross profit was $10,267 million compared with $9,632 million in the prior-year quarter, resulting in respective gross margins of 59.1% and 57.7% owing to a strong portfolio mix. Total expenses increased to $6,509 million from $6,320 million, driven by higher interest expense and R&D costs.
Segmental Performance
Software: Revenues improved to $7,514 million from $7,288 million, driven by growth in Hybrid Platform & Solutions, Red Hat, Automation, Data & AI and Transaction Processing. The reported segment revenues exceeded our estimate of $6,936 million owing to solid hybrid cloud traction. Segment pre-tax income from continuing operations was $2,417 million compared with $2,347 million in the year-ago quarter for margins of 32.2% each. The company is witnessing healthy hybrid cloud adoption by clients and solid demand trends across RedHat, automation and Data & AI.
Consulting: Revenues were $5,048 million, up from $4,770 million, led by pervasive growth driven by demand for digital transformation, increasing revenues across all business lines and regions. The segment’s revenues beat our estimate of $5,017 million. Segment pre-tax income was $582 million compared with $523 million in the year-ago quarter, driven by productivity enhancement initiatives for respective margins of 11.5% and 11%.
Infrastructure: Revenues were $4,604 million, up from $4,483 million, as lower demand for support services was more than offset by higher demand for hybrid and distributed infrastructure. Segment pre-tax income was $1,185 million compared with $1,026 million in the year-ago quarter for respective margins of 25.7% and 22.9%.
Financing: Revenues improved to $175 million from $172 million. Segment pre-tax income was $117 million compared with $75 million in the year-ago quarter for respective margins of 67.3% and 43.6%.
Cash Flow & Liquidity
During the fourth quarter, IBM generated $4,463 million in cash from operations compared with $3,965 million in the year-ago quarter, bringing the respective tallies for 2023 and 2022 to $13,931 million and $10,435 million. Free cash flow was $6,087 million in the quarter, up from $5,209 million in the prior-year period, driven by higher profit and working capital efficiencies. As of Dec 31, 2023, the company had $13,068 million in cash and cash equivalents with $50,121 million of long-term debt compared with respective tallies of $7,886 million and $46,189 million in the year-ago period.
Outlook
For full-year 2024, the company expects revenue growth in the mid-single digit on a constant currency basis. Free cash flow is expected to be in the vicinity of $12 billion.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month.
VGM Scores
At this time, IBM has an average Growth Score of C, a grade with the same score on the momentum front. Following the exact same course, 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 C. 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. It comes with little surprise IBM has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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Why Is IBM (IBM) Down 3.3% Since Last Earnings Report?
It has been about a month since the last earnings report for IBM (IBM - Free Report) . Shares have lost about 3.3% in that time frame, underperforming 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 its most recent earnings report in order to get a better handle on the important drivers.
IBM Beats Q4 Earnings Estimates on Solid AI, Cloud Demand
IBM ended 2023 on a positive note with strong fourth-quarter results, wherein both the top and bottom lines beat the respective Zacks Consensus Estimate. 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 $3,285 million or $3.54 per share compared with $2,711 million or $3.13 per share in the year-ago quarter. The improvement in GAAP earnings was primarily attributable to top-line growth.
Excluding non-recurring items, non-GAAP net income from continuing operations was $3.87 per share compared with $3.60 in the prior-year quarter. The bottom line beat the Zacks Consensus Estimate by 9 cents.
For 2023, GAAP net income from continuing operations was $7,514 million or $8.15 per share compared with $1,783 million or $1.95 per share in 2022. Non-GAAP net income from continuing operations was $9.62 per share compared with $9.13 in 2022.
Quarter Details
Quarterly total revenues increased to $17,381 million from $16,690 million on strong demand for hybrid cloud and AI, driving growth in the Software and Consulting segments. On a constant currency basis, revenues were up 3% year over year. The top line beat the consensus estimate of $17,279 million.
Gross profit was $10,267 million compared with $9,632 million in the prior-year quarter, resulting in respective gross margins of 59.1% and 57.7% owing to a strong portfolio mix. Total expenses increased to $6,509 million from $6,320 million, driven by higher interest expense and R&D costs.
Segmental Performance
Software: Revenues improved to $7,514 million from $7,288 million, driven by growth in Hybrid Platform & Solutions, Red Hat, Automation, Data & AI and Transaction Processing. The reported segment revenues exceeded our estimate of $6,936 million owing to solid hybrid cloud traction. Segment pre-tax income from continuing operations was $2,417 million compared with $2,347 million in the year-ago quarter for margins of 32.2% each. The company is witnessing healthy hybrid cloud adoption by clients and solid demand trends across RedHat, automation and Data & AI.
Consulting: Revenues were $5,048 million, up from $4,770 million, led by pervasive growth driven by demand for digital transformation, increasing revenues across all business lines and regions. The segment’s revenues beat our estimate of $5,017 million. Segment pre-tax income was $582 million compared with $523 million in the year-ago quarter, driven by productivity enhancement initiatives for respective margins of 11.5% and 11%.
Infrastructure: Revenues were $4,604 million, up from $4,483 million, as lower demand for support services was more than offset by higher demand for hybrid and distributed infrastructure. Segment pre-tax income was $1,185 million compared with $1,026 million in the year-ago quarter for respective margins of 25.7% and 22.9%.
Financing: Revenues improved to $175 million from $172 million. Segment pre-tax income was $117 million compared with $75 million in the year-ago quarter for respective margins of 67.3% and 43.6%.
Cash Flow & Liquidity
During the fourth quarter, IBM generated $4,463 million in cash from operations compared with $3,965 million in the year-ago quarter, bringing the respective tallies for 2023 and 2022 to $13,931 million and $10,435 million. Free cash flow was $6,087 million in the quarter, up from $5,209 million in the prior-year period, driven by higher profit and working capital efficiencies. As of Dec 31, 2023, the company had $13,068 million in cash and cash equivalents with $50,121 million of long-term debt compared with respective tallies of $7,886 million and $46,189 million in the year-ago period.
Outlook
For full-year 2024, the company expects revenue growth in the mid-single digit on a constant currency basis. Free cash flow is expected to be in the vicinity of $12 billion.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month.
VGM Scores
At this time, IBM has an average Growth Score of C, a grade with the same score on the momentum front. Following the exact same course, 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 C. 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. It comes with little surprise IBM has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.