There was enough meat in the latest earnings report of the US tech giant IBM to help its shares to raise even though the results were not quite the perfect that the markets wanted.
IBM reported a slightly better than expected results for fourth quarter revenues and non-GAAP EPS at $21.76 billion and $4.87 respectively compared to market estimates of $21.73 billion and $4.82 for revenues and non-GAAP EPS.
The company also reported a drop of 3.5 per cent in revenues in dollars and 1 per cent constant currency in the same period.
The company forecast a guide of “at least” $13.90 EPS for 2019 which is k\just a bit more than the reported 2018 EPS of $13.81 and close to a analysts’ consensus of $13.80. The 2019 free cash flow according to the guidance of the company was about $12 billion – lower than the market estimate of $13 billion as per a consensus among analysts. According to a spokesperson of IBM, the free cash flow consensus estimate is flawed after one analyst estimated it to be about $16 billion and probably had not taken into account the recent deals for selling off of seven software businesses of the company and its Seterus mortgage servicing unit – all of which would be closed down in the coming months and therefore not contribute to the free cash flow, consequently taking it down than the estimate of that one analyst.
While the company considered its asset sale for its 2019 guidance, it failed to take into consideration the decision of the company to purchase open-source software giant Red Hat for a deal worth $34 billion. That deal would be financed through cash from the company and would most probably closed by the second half of this year.
There was positive reaction in the market in terms of the share prices after the announcement of the fourth quarter results after the shares of the company dropped by 25 per cent in the 12 months before the announcement of the results and were down by 40 per cent compared to the highs that they reached in 2013.
The company reported better than expected results in sale of software. The highly profitable Cognitive Solutions (CS) segment of IBM beat analysts’ estimates with a revenue of $5.46 billion against estimates of $5.27 billion. In terms of the whole year, the revenue for the CS segment for the entire 2018 was up by only 2 per cent after a drop of 3 per cent in the previous quarter.
The Q4 results were also boosted by enhanced deal closings for IBM’s age-old transaction processing software business after it had dropped by 10 per cent in the third quarter. in the most recent quarter IBM reported a drop of just 1 per cent in revenues from its transaction processing business. There was also a 4 per cent increase in revenues from its cloud services.
There was however a drop of 21 per cent in revenues of IBM’s Systems segment that encompasses sales of hardware and operating system software, at $2.62 billion. That was lower than the $2.77 billion consensus estimate of the market.
The Global Business Services (GBS) segment of the IBM marked mixed performance for the quarter with an increase of 4 per cent in revenues at $4.32 billion which was more than the market estimate of $4.15 billion. The decline in revenues for its business process and software outsourcing revenue were oddest by a 5 per cent increase in consulting revenue. At the same time, there was a 4 per cent drop in the revenues from IBM’s Technology Services & Cloud Platforms at $8.93 billion which was lower than the market expectations of $9.04 billion.
(Adapted from TheStreet.com)