IBM (NYSE:IBM) Releases Earnings Results, Beats Estimates By $0.02 EPS


"After completing the acquisition of Red Hat, and with strong free cash flow and disciplined financial management, we significantly deleveraged in the second half", said James Kavanaugh, IBM 's chief financial officer.

Looking much further ahead, the company also expects Red Hat to contribute approximately two points of compound annual revenue growth to IBM over a five-year period. Tuesday's report, however, noted a slightly higher $4.71 of earnings per share for the tech giant.

In the fourth quarter, the company generated net cash from operating activities of $3.5 billion, or $6.7 billion excluding Global Financing receivables. Adjusted earnings per share for this year should be at least $13.35, up from $12.81 in 2019, the company said, and above what analysts forecast. IBM shares over the past five years (going into this report) were up 10%, including dividends, while the iShares US Technology ETF (IYW) is up over 154% over that time! Analysts had estimated $13.29. Shares of IBM increased by nearly 5% after hours.

The global technology services segment (including data centre business) has had a poorer quarter, reporting 4.8 per cent less revenue ($6.9bn), compared to the same period past year.

Global Technology Services (_includes Infrastructure & Cloud Services and Technology Support Services) - _revenues of $6.9 billion, down 4.8 percent (down 4.0 percent adjusting for currency).

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"We ended 2019 on a strong note, returning to overall revenue growth in the quarter, led by accelerated cloud performance", said IBM chief executive Ginni Rometty. "Looking ahead, this positions us for sustained revenue growth in 2020 as we continue to help our clients shift their mission-critical workloads to the hybrid cloud and scale their efforts to become a cognitive enterprise".

The company expects GAAP diluted earnings per share of at least $10.57, and operating (non-GAAP) diluted earnings per share of at least $13.35.

Much of that late-year sluggishness had taken place following a not-so-great third quarter, which saw revenues fall 3.9% year-on-year.

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. The report, which covered the fourth quarter of fiscal 2019, edged out analyst expectations across the board and IBM's shares posted a modest gain in after-hours trading. A large and increasing portion of this investment will be on open hybrid and multicloud environments that enable them to move information across different environments. IBM has relied on a combination of its own R&D capabilities and deep pockets to enter modern markets, but has struggled to turn them into revenue growth.

One of those bulls - Instinet analyst Jeffrey Kvaal, who has a "buy" rating and a US$170 price target, believes "investors should focus on IBM's EPS potential in 2021, which we forecast ~9% growth to $14.60; consensus models ~$14.30". 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.