Yahoo Finance IBM (IBM) Up 1% Since Last Earnings Report: Can It Continue?
It has been about a month since the last earnings report for IBM (IBM). Shares have added about 1% 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 Q1 Earnings Beat, Revenues Miss Despite Solid Demand
IBM started 2024 on a positive note with relatively modest first-quarter results. The bottom line beat the Zacks Consensus Estimate, but the top line missed the same despite solid demand. The company witnessed healthy demand trends for hybrid cloud and AI solutions with a client-focused portfolio and broad-based growth and remains firmly on track to reach its targets for 2024.
Net Income
On a GAAP basis, net income from continuing operations was $1,575 million or $1.69 per share compared with $934 million or $1.02 per share in the year-ago quarter. The improvement in GAAP earnings was primarily attributable to top-line growth and income tax benefits.
Excluding non-recurring items, non-GAAP net income from continuing operations was $1.68 per share compared with $1.36 in the prior-year quarter. The bottom line beat the Zacks Consensus Estimate by 9 cents.
Quarter Details
Quarterly total revenues increased to $14,462 million from $14,252 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 missed the consensus estimate of $14,572 million.
Gross profit improved to $7,742 million from $7,509 million in the prior-year quarter, resulting in respective gross margins of 53.5% and 52.7% owing to a strong portfolio mix. Total expenses increased to $6,669 million from $6,451 million, driven by higher interest expense and R&D costs.
Segmental Performance
Software: Revenues improved to $5,899 million from $5,591 million, driven by growth in Hybrid Platform & Solutions, Red Hat, Automation, Data & AI and Transaction Processing. The reported segment revenues missed our estimate of $5,998 million despite solid hybrid cloud traction. Segment pre-tax income from continuing operations was $1,500 million compared with $1,379 million in the year-ago quarter for margins of 25.4% and 24.7%, respectively. The company is witnessing healthy hybrid cloud adoption by clients and solid demand trends across RedHat, automation and Data & AI.
Consulting: Revenues were $5,186 million compared with $5,197 million a year ago, led by pervasive growth driven by demand for digital transformation, increasing revenues across most business lines and regions. The segment’s revenues missed our estimate of $5,340 million. Segment pre-tax income was relatively flat at $424 million for a margin of 8.2%.
Infrastructure: Revenues were $3,076 million compared with $3,098 million, as lower demand for support services was partially offset by higher demand for hybrid and distributed infrastructure. Segment pre-tax income was $311 million compared with $307 million in the year-ago quarter for respective margins of 10.1% and 9.9%.
Financing: Revenues remained almost flat at $193 million. Segment pre-tax income was $92 million compared with $100 million in the year-ago quarter for respective margins of 47.7% and 51.2%.
Cash Flow & Liquidity
During the first quarter, IBM generated $4,168 million in cash from operations compared with $3,774 million in the year-ago quarter. Free cash flow was $1,910 million in the quarter, up from $1,340 million in the prior-year period, driven by higher profit and working capital efficiencies. As of Mar 31, 2024, the company had $14,603 million in cash and cash equivalents with $54,033 million 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.
The consensus estimate has shifted -5.19% due to these changes.
VGM Scores
At this time, IBM has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, 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 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.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
International Business Machines Corporation (IBM) : Free Stock Analysis Report
