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IBM (IBM) Up 1.8% Since Last Earnings Report: Can It Continue?
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A month has gone by since the last earnings report for IBM (IBM - Free Report) . Shares have added about 1.8% in that time frame, underperforming 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 catalysts.
IBM’s Q3 Earnings Beat, Revenues Miss Despite Solid Demand
IBM reported relatively healthy third-quarter 2024 results, with adjusted earnings beating the Zacks Consensus Estimate but the top line missing the same.
The company witnessed healthy demand trends for hybrid cloud and artificial intelligence (AI) solutions with a client-focused portfolio and broad-based growth. It remains on track to reach its targets for 2024. However, despite solid AI traction, IBM’s quarterly performance was dented by a pause in discretionary spending owing to economic uncertainty due to geopolitical issues, upcoming elections and the evolving landscape of interest rates and inflation levels.
Net Income
On a GAAP basis, net loss from continuing operations was $317 million or a loss of 34 cents per share against a net income of $1.71 billion or $1.86 per share in the year-ago quarter. The significant decline in GAAP earnings was attributable to a non-recurring $2.7 billion pension settlement charge related to the transfer of a portion of the company's pension obligations and related plan assets to a third-party insurer.
Excluding non-recurring items, non-GAAP net income from continuing operations was $2.30 per share compared with $2.20 in the prior-year quarter. The bottom line beat the Zacks Consensus Estimate by 3 cents.
Quarter Details
Quarterly total revenues increased to $14.97 billion from $14.75 billion on strong demand for hybrid cloud and AI, driving growth in the Software segment. On a constant currency basis, revenues were up 2% year over year. The top line, however, missed the consensus estimate of $15.19 billion.
Gross profit improved to $8.42 billion from $8.02 billion in the prior-year quarter, resulting in respective gross margins of 56.3% and 54.4% owing to a strong portfolio mix. Total expenses increased to $9.22 billion from $6.15 billion due to a one-time pension settlement charge.
Segmental Performance
Software: Revenues improved to $6.52 billion from $5.95 billion, driven by growth in Hybrid Platform & Solutions, Red Hat, Automation and Transaction Processing. The segment’s revenues beat our estimate of $6.48 billion on solid hybrid cloud traction. Segment profit was $1.97 billion compared with $1.72 billion in the year-ago quarter for margins of 30.2% and 29%, respectively. The company is witnessing healthy hybrid cloud adoption by clients and solid demand trends across RedHat, automation and generative AI offerings like watsonx.
Consulting: Revenues were $5.15 billion compared with $5.18 billion a year ago as clients prioritized spending and pulled back on discretionary projects. The segment’s revenues missed our estimate of $5.19 billion. Segment profit declined to $559 million from $566 million for margins of 10.9% each.
Infrastructure: Revenues were $3.04 billion compared with $3.27 billion on lower demand for hybrid and distributed infrastructure, reflecting product cycle dynamics. Segment profit was $422 million compared with $490 million in the year-ago quarter, owing to higher investments in the business across areas like AI, hybrid cloud and quantum, for respective margins of 13.9% and 15%.
Financing: Revenues declined to $181 million from $186 million a year ago. Segment profit was down to $86 million from $91 million in the year-ago quarter for respective margins of 47.5% and 49.2%.
Cash Flow & Liquidity
During the quarter, IBM generated $2.88 billion in cash from operations compared with $3.05 billion in the year-ago quarter, bringing the respective tallies for the first nine months to $9.11 billion and $9.47 billion. Free cash flow was $2.06 billion in the quarter, up from $1.68 billion in the prior-year period, driven by higher profit and working capital efficiencies. As of Sept. 30, 2024, the company had $13.2 billion in cash and cash equivalents with $52.98 billion of long-term debt.
Outlook
For full-year 2024, the company reiterated its revenue growth expectations 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?
In the past month, investors have witnessed a downward trend in estimates review.
VGM Scores
At this time, IBM has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. 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 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.
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IBM (IBM) Up 1.8% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for IBM (IBM - Free Report) . Shares have added about 1.8% in that time frame, underperforming 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 catalysts.
IBM’s Q3 Earnings Beat, Revenues Miss Despite Solid Demand
IBM reported relatively healthy third-quarter 2024 results, with adjusted earnings beating the Zacks Consensus Estimate but the top line missing the same.
The company witnessed healthy demand trends for hybrid cloud and artificial intelligence (AI) solutions with a client-focused portfolio and broad-based growth. It remains on track to reach its targets for 2024. However, despite solid AI traction, IBM’s quarterly performance was dented by a pause in discretionary spending owing to economic uncertainty due to geopolitical issues, upcoming elections and the evolving landscape of interest rates and inflation levels.
Net Income
On a GAAP basis, net loss from continuing operations was $317 million or a loss of 34 cents per share against a net income of $1.71 billion or $1.86 per share in the year-ago quarter. The significant decline in GAAP earnings was attributable to a non-recurring $2.7 billion pension settlement charge related to the transfer of a portion of the company's pension obligations and related plan assets to a third-party insurer.
Excluding non-recurring items, non-GAAP net income from continuing operations was $2.30 per share compared with $2.20 in the prior-year quarter. The bottom line beat the Zacks Consensus Estimate by 3 cents.
Quarter Details
Quarterly total revenues increased to $14.97 billion from $14.75 billion on strong demand for hybrid cloud and AI, driving growth in the Software segment. On a constant currency basis, revenues were up 2% year over year. The top line, however, missed the consensus estimate of $15.19 billion.
Gross profit improved to $8.42 billion from $8.02 billion in the prior-year quarter, resulting in respective gross margins of 56.3% and 54.4% owing to a strong portfolio mix. Total expenses increased to $9.22 billion from $6.15 billion due to a one-time pension settlement charge.
Segmental Performance
Software: Revenues improved to $6.52 billion from $5.95 billion, driven by growth in Hybrid Platform & Solutions, Red Hat, Automation and Transaction Processing. The segment’s revenues beat our estimate of $6.48 billion on solid hybrid cloud traction. Segment profit was $1.97 billion compared with $1.72 billion in the year-ago quarter for margins of 30.2% and 29%, respectively. The company is witnessing healthy hybrid cloud adoption by clients and solid demand trends across RedHat, automation and generative AI offerings like watsonx.
Consulting: Revenues were $5.15 billion compared with $5.18 billion a year ago as clients prioritized spending and pulled back on discretionary projects. The segment’s revenues missed our estimate of $5.19 billion. Segment profit declined to $559 million from $566 million for margins of 10.9% each.
Infrastructure: Revenues were $3.04 billion compared with $3.27 billion on lower demand for hybrid and distributed infrastructure, reflecting product cycle dynamics. Segment profit was $422 million compared with $490 million in the year-ago quarter, owing to higher investments in the business across areas like AI, hybrid cloud and quantum, for respective margins of 13.9% and 15%.
Financing: Revenues declined to $181 million from $186 million a year ago. Segment profit was down to $86 million from $91 million in the year-ago quarter for respective margins of 47.5% and 49.2%.
Cash Flow & Liquidity
During the quarter, IBM generated $2.88 billion in cash from operations compared with $3.05 billion in the year-ago quarter, bringing the respective tallies for the first nine months to $9.11 billion and $9.47 billion. Free cash flow was $2.06 billion in the quarter, up from $1.68 billion in the prior-year period, driven by higher profit and working capital efficiencies. As of Sept. 30, 2024, the company had $13.2 billion in cash and cash equivalents with $52.98 billion of long-term debt.
Outlook
For full-year 2024, the company reiterated its revenue growth expectations 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?
In the past month, investors have witnessed a downward trend in estimates review.
VGM Scores
At this time, IBM has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. 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 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.