IBM Shares Drop In After-Hours Trading After Major Q1 Earnings Beat


IBM CEO Ginni Rometty and Italian Prime Minister Matteo Renzi (standing) witness the signing of an agreement for the planned Watson Health European Center of Excellence in Milan, near the country’s Human Technopole Italy 2040 research campus, in an agreement signed in March 2016. (Credit: Daniel Goodrich/Feature Photo Service for IBM)

IBM reported a major beat in its Q1 earnings on Monday, clearing earnings estimates of $2.09 by $0.26 at $2.35 per share. But although revenue also came in far ahead of consensus, beating expectations of $18.28 billion by $420 million at $18.7 billion, that number dropped for the sixteenth consecutive quarter as shared plunged in after-hours tradings.

The latest check-in on Big Blue’s transition to a cloud computing company revealed that IBM now makes 37% of its total revenue from its “strategic imperatives,” which represent IBM’s cloud portfolio, Watson’s AI and analytics, security, social and mobile. The company grew those businesses by 17% in constant currency, totaling $29.8 billion in revenue.

“We are pleased with the progress we have made helping our clients apply new cognitive solutions and hybrid cloud platforms,” said IBM chairman, president and CEO Ginni Rometty in a statement. “IBM has established itself as the industry leader in total cloud, analytics and cognitive, all of which helped drive our strategic imperatives revenue growth at a strong double-digit rate, substantially faster than the market.”

Shares of the company, which had been up $0.88 in trading Monday, were down much more than that amount in after-hours trading as IBM maintained its previously weakened earnings guidance for the full year 2016. Shares were trading at $148.82 as of 5:00 ET, down 2.48%, or $3.78, from market close. IBM’s stock had similarly dropped after reporting a quarterly earnings beat last quarter.

That failure to increase guidance may have disappointed traders, analyst Bill Kreher wrote in a note late on Monday. “While shares may be down in trading tomorrow, we view weakness as a natural pause following price strength in recent weeks,” wrote Kreher, an analyst at Edward Jones , which reiterated its “Buy” rating for the company.

IBM CEO Ginni Rometty and Italian Prime Minister Matteo Renzi (standing) witness the signing of an agreement for the planned Watson Health European Center of Excellence in Milan, near the country’s Human Technopole Italy 2040 research campus, in an agreement signed in March 2016. (Credit: Daniel Goodrich/Feature Photo Service for IBM)

IBM IBM +0.53% reported a major beat in its Q1 earnings on Monday, clearing earnings estimates of $2.09 by $0.26 at $2.35 per share. But although revenue also came in far ahead of consensus, beating expectations of $18.28 billion by $420 million at $18.7 billion, that number dropped for the sixteenth consecutive quarter as shared plunged in after-hours tradings.

The latest check-in on Big Blue’s transition to a cloud computing company revealed that IBM now makes 37% of its total revenue from its “strategic imperatives,” which represent IBM’s cloud portfolio, Watson’s AI and analytics, security, social and mobile. The company grew those businesses by 17% in constant currency, totaling $29.8 billion in revenue.

“We are pleased with the progress we have made helping our clients apply new cognitive solutions and hybrid cloud platforms,” said IBM chairman, president and CEO Ginni Rometty in a statement. “IBM has established itself as the industry leader in total cloud, analytics and cognitive, all of which helped drive our strategic imperatives revenue growth at a strong double-digit rate, substantially faster than the market.”

Shares of the company, which had been up $0.88 in trading Monday, were down much more than that amount in after-hours trading as IBM maintained its previously weakened earnings guidance for the full year 2016. Shares were trading at $148.82 as of 5:00 ET, down 2.48%, or $3.78, from market close. IBM’s stock had similarly dropped after reporting a quarterly earnings beat last quarter.

That failure to increase guidance may have disappointed traders, analyst Bill Kreher wrote in a note late on Monday. “While shares may be down in trading tomorrow, we view weakness as a natural pause following price strength in recent weeks,” wrote Kreher, an analyst at Edward Jones , which reiterated its “Buy” rating for the company. Recommended by Forbes

IBM’s cash on hand increased $6.7 billion to $14.9 billion at the end of March, even after returning $2.2 billion to shareholders in dividends and repurchases. The company generated free cash flow of $2.3 billion in Q1.

“To move our clients to the future, we’ve been making significant changes to our business,” CFO Martin Schroeter told analysts on a call late on Monday. IBM noted it was highly acquisitive in Q1. The company purchased the Weather Company in January and made chief David Kenny the head of its Watson business; IBM also acquired video streaming company Ustream and three digital agencies. Most recently, IBM announced its intent to buy Salesforce partner Bluewolf in March.

IBM’s strategic imperatives grew nicely, according to analyst Patrick Moorhead, president at Moor Insights & Strategy and a Forbes contributor. But it was actually its hardware sales that might be a cause for concern, the analyst says. Within IBM hardware revenue—$1.7 billion, down 20.6% adjusted for currency, the analyst said Power8 hardware systems increasing market share were a possible sign of progress, but that a major drop-off in Z systems revenue was “surprising.” “I hope it doesn’t indicate something negative on the outlook,” he added. IBM did not in its report that segment gross profit margins actually increased.

The company had announced in a filing in February that it would use a one-time $1 billion tax gain in Japan to cover the cost of more restructuring, the company’s code-word for major layoffs. The company still hasn’t confirmed widespread rumors in the press of widespread cuts of as many as 17,000 jobs among the companies’ estimated 70,000 or so U.S. positions. That restructuring charge boosted IBM’s earnings to a more favorable number than otherwise, Bernstein analyst Toni Sacconaghi noted in a preview report on Monday, though even then EPS still dropped from $2.91 a year ago. In its earnings, IBM reported that it had paid nearly $1.5 billion for the workforce “transformation” as well as real estate actions and other “actions in Latin America,” which roughly offset the tax refund and its corresponding interest.

Analyst consensus heading into earnings predicted that IBM’s stock still had further to fall as the company transitions to cloud revenue, though it does have some supporters, including Kreher at Edward Jones, as well as Stifel and Merrill Lynch, which has positive expectations for the company’s health care initiatives. IBM didn’t include its $2.6 billion acquisition of Truven Health Analytics, closed just over a week ago, in this earnings report.

Asked by an analyst about where IBM sees itself in its cloud transformation, Schroeter pointed to the company’s double-digit strategic imperative growth and the new segments’ improving gross margins, but added: ”There’s a lot more going on in the transformation than just the statistics.”

Source: http://www.forbes.com
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