Arvind Krishna, CEO of International Business Machines Corporation (IBM), during a television interview in San Francisco, California, on July 13, 2022.
David Paul Morris | Bloomberg | Getty Images
Shares of IBM fell as much as 4% in extended trading on Monday after the company cut its cash forecast for 2022. It was still baptizing on the top and bottom lines.
Here’s how the company did it:
- Earnings: $ 2.31 per share, adjusted, compared to $ 2.27 per share as analysts expected, according to Refinitiv.
- Revenue: $ 15.54 billion, up from $ 15.18 billion as analysts expected, according to Refinitiv.
IBM’s revenue rose 9% year-over-year during the quarter, according to a statement. Revenues from continuing operations rose to $ 1.47 billion from $ 810 million in the quarter last year. IBM split its publicly traded infrastructure services business in Kyndryl in November, and sales to Kyndryl boosted IBM’s revenue.
“We are planning about five to six points of revenue growth in sales to Kyndryl in 2022,” Jim Kavanaugh, head of finance at IBM, said in a conference call with analysts.
Management requested $ 10 billion in free cash flow for the entire 2022, below the $ 10 billion to $ 10.5 billion range it provided in April. Kavanaugh blamed the strength of the dollar and the suspension of business in Russia.
“This was a very profitable business for us and by the way it will cost a few hundred million dollars of free cash flow and profits by 2022,” he said.
Executives reiterated their steady-growth revenue growth plan at the top of their one-digit model for the year. The currency negatively impacted reported revenue at more than 6% of growth, or $ 900 million, which was $ 200 more than cash rates had indicated three months ago, Kavanaugh said.
IBM posted software revenue of $ 6.17 billion in the second quarter, up 6%, but below the $ 6.3 billion agreed upon by analysts surveyed by StreetAccount.
The company’s consulting division generated revenue of $ 4.85 billion, a jump of nearly 10% and surpassing StreetAccount’s consensus of $ 4.67 billion.
IBM’s infrastructure unit, which includes mainframe computers, contributed $ 4.24 billion in revenue, nearly 19% more and well above the $ 3.78 billion StreetAccount consensus. On May 31, IBM began selling its latest mainframe, the z16. Each mainframe cycle usually leads to revenue growth at the beginning as customers upgrade, followed by a decline. Sales of z Systems products increased 69%, compared to a 19% decline in the first quarter.
Also during the quarter, IBM announced a plan to acquire cybersecurity startup Randori, and Francisco Partners closed its acquisition of IBM’s Watson healthcare analytics and data assets in a deal allegedly worth more than $ 1,000. millions of dollars.
IBM’s gross margin fell to 53.4% from 55.2% in the quarter last year. The company said the competitive job market affected the results of its consulting branch, continuing a trend it saw earlier this year. The company has been working to address this by charging higher rates on contracts and expects a pre-tax margin of 9% to 10% for the full year, which would increase by more than 1 percentage point year-over-year.
“Consulting, which accounts for more than half of IBM’s workforce, is most affected by the inflationary labor market and rising labor costs as we contribute and increase capacity,” Kavanaugh said. “We are beginning to grasp the reality of these higher costs in our prices, but given the time that elapses from the signing of the contract to the realization of the revenue, it is taking a while to see it on our margins. “.
Before the out-of-hours move, IBM shares rose 3% so far this year, while the S&P 500 index fell about 20%.
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