4Q Earnings Snapshot — IBM

Yolanda Curtis
January 24, 2020

Analysts expected earnings of $ 4.68 per share on sales of $ 21.64 billion.

The company recorded non-GAAP earnings of US$4.71 per share (EPS), versus a forecast of US$4.69 per share on Refinitiv.

IBM recorded a marginal rise of 0.1% in revenue to $21.78 billion in the quarter, compared with a drop of almost 1% predicted by analysts on average, according to IBES data from Refinitiv.

IBM expects full-year earnings to be $13.35 per share.

"We ended 2019 on a strong note, returning to overall revenue growth in the quarter, led by accelerated cloud performance", said chairman, president and chief executive officer Ginni Rometty.

Red Hat contributed US$1 billion in revenue in the quarter ended December 31, but IBM was only allowed to recognize US$573 million of that due to USA accounting standards.

Buying Red Hat, IBM's biggest acquisition in its 108 years, represents a big bet for Ms. Rometty to finally deliver lasting top-line growth.

IBM's Cloud and Data Platforms sub-segment, which includes Red Hat, grew revenues by 20 per cent.

In some good news for IBM, however, the company said its fourth-quarter revenue grew by 0.1% - its first quarter of growth after five straight quarters of year-over-year declines, according to The Wall Street Journal.

Meanwhile, systems revenue climbed 16% led by the IBM Z, IBM's smaller footprint mainframe that utilizes design thinking. The Global Business Services segment, which encompasses application development and cloud migration, was flat, while revenue declined 4% in Global Technology Services. Holding the segment afloat was the Consulting arm, which grew four percent.

After the bell on Tuesday, shares of technology giant IBM (IBM) rallied after the company's fourth quarter results.

Looking at its 2020 expectations, IBM said it was forecasting GAAP earnings per share of at least $10.57, and operating, non-GAAP earnings per share of at least $13.35.

For the full year, the company generated net cash from operating activities of $14.8 billion, or $14.3 billion excluding Global Financing receivables, and full-year free cash flow of $11.9 billion.

"We now see long-term revenue growth at IBM as less likely without a more meaningful shift in the portfolio", commented Morgan Stanley analysts Katy Huberty, after the bank cut IBM's rating to equal-weight from overweight.

IBM shares are trading up about $6 in Tuesday's after-hours session as I write this, which would put them less than $2 away from the current average price target on the street.

So far, January 2020 is already proving to be better than the last three months of 2019, which saw share price stuck around the US$132 to US$136 region.

The quarter brought modest, but welcome revenue growth.

The earnings surprise is all the more notable given that enterprise suppliers like Cisco Systems Inc., Dell Technologies Inc., Hewlett Packard Enterprise Inc. and NetApp Inc. have recently reported weakening demand. Red Hat sells support for open-source software that IBM expects more companies will use as they crunch more of their data in the cloud. The consensus 12-month price target on the stock is $146.89.

During the call, IBM highlighted partnerships with companies like Box and Workday as how customers are combining Red Hat and IBM products. The stock rose about 4 per cent in extended trading following the report. BMO Capital Markets cut their price objective on shares of IBM from $157.00 to $152.00 and set a "market perform" rating on the stock in a research report on Thursday, October 17th.

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