International Business Machines Corporation (IBM Quick QuoteIBM - Free Report) reported modest fourth-quarter 2022 results, wherein the bottom line missed the Zacks Consensus Estimate but the top line beat the same. The company witnessed healthy demand for hybrid cloud and AI solutions with a client-focused portfolio and broad-based growth.

Net Income

On a GAAP basis, net income from continuing operations was $2,869 million or $3.13 per share compared with restated net income of $2,462 million or $2.72 per share in the year-ago quarter. The improvement in GAAP earnings, despite a flat revenue trajectory, was primarily attributable to lower operating expenses.

Excluding non-recurring items, non-GAAP net income was $3.60 per share compared with the restated tally of $3.35 per share in the prior-year quarter. The bottom line missed the Zacks Consensus Estimate by a penny.

GAAP net income for 2022 from continuing operations decreased to $1,783 million or $1.95 per share from a restated net income of $4,712 million or $5.21 per share in 2021, largely due to a one-time, non-cash pension settlement charge of $5.9 billion. Excluding non-recurring items, non-GAAP net income was $9.13 per share compared with the restated tally of $7.93 per share in 2021.

Quarter Details

Quarterly total revenues remained flat at $16,690 million despite strong demand for hybrid cloud and AI, driving growth in Software and Consulting. The top line surpassed the consensus estimate of $15,548 million. Total revenues in 2022 improved to $60,530 million from $57,350 million in 2021.

Gross profit was $9,632 million compared with $9,500 million in the prior-year quarter, resulting in respective gross margins of 57.7% and 56.9%. Total expenses decreased to $6,320 million from $6,632 million, driven by favorable foreign currency impact.

Segmental Performance

Software: Revenues improved to $7,288 million from $7,087 million, driven by growth in Hybrid Platform & Solutions and Transaction Processing. Segment pre-tax income from continuing operations was $2,347 million compared with $2,142 million in the year-ago quarter for respective margins of 32.2% and 30.2%. The company is witnessing healthy hybrid cloud adoption by clients.

Consulting: Revenues were $4,770 million, up from $4,746 million, led by pervasive growth driven by demand for digital transformation, growing revenues and signings at double-digit rates across all business lines and regions. Segment pre-tax income was $523 million compared with $436 million in the year-ago quarter for respective margins of 11% and 9.2%.

Infrastructure: Revenues were $4,483 million, up from $4,414 million, due to higher Hybrid Infrastructure revenues and continuous adoption of z16 mainframe – an open, agile platform that integrates into a hybrid cloud environment with industry-leading security, data privacy and latency. Segment pre-tax income was $1,026 million compared with $1,036 million in the year-ago quarter for respective margins of 22.9% and 23.5%.

Financing: Revenues remained flat at $172 million due to the challenging macroeconomic environment. Segment pre-tax income was $75 million compared with $79 million in the year-ago quarter for respective margins of 43.6% and 46%.

Cash Flow & Liquidity

During the fourth quarter, IBM generated $3,965 million in cash from operations compared with $2,543 million in the year-ago quarter, bringing the respective tallies for 2022 and 2021 to $10,435 million and $12,796 million. Free cash flow was $5,209 million in the quarter, up from $3,345 million in the prior-year period. As of Dec 31, 2022, the company had $7,886 million in cash and cash equivalents with $46,189 million of long-term debt compared with respective tallies of $6,650 million and $44,917 million a year ago.

Outlook

For full-year 2023, the company expects revenue growth in the mid-single-digit range on a constant currency basis. Free cash flow is estimated to be approximately $10.5 billion.

Zacks Rank & Stocks to Consider

IBM currently carries a Zacks Rank #3 (Hold).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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