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IBM Q1 Earnings Beat, Revenues Miss Despite Cloud Demand
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International Business Machines Corporation (IBM - Free Report) reported relatively healthy first-quarter 2023 results, wherein the bottom line beat the Zacks Consensus Estimate. The company witnessed healthy demand for hybrid cloud and AI solutions with a client-focused portfolio and broad-based growth. However, despite top-line improvement on a year-over-year basis, revenues lagged the consensus estimate.
Net Income
On a GAAP basis, net income from continuing operations was $934 million or $1.02 per share compared with $662 million or 73 cents per share in the year-ago quarter. The improvement in GAAP earnings was primarily attributable to top-line growth and lower operating expenses.
Excluding non-recurring items, non-GAAP net income from continuing operations was $1.36 per share compared with $1.40 per share in the prior-year quarter. The bottom line beat the Zacks Consensus Estimate by 9 cents.
International Business Machines Corporation Price, Consensus and EPS Surprise
Quarterly total revenues increased to $14,252 million from $14,197 million on strong demand for hybrid cloud and AI, driving growth in Software and Consulting segments. On a constant currency basis, revenues were up 4.4% year over year. The top line missed the consensus estimate of $14,274 million.
Gross profit was $7,509 million compared with $7,335 million in the prior-year quarter, resulting in respective gross margins of 52.7% and 51.7% owing to a strong portfolio mix. Total expenses decreased to $6,451 million from $6,712 million, driven by improvements in the business mix and ongoing productivity initiatives.
Segmental Performance
Software: Revenues improved to $5,921 million from $5,772 million, driven by growth in Hybrid Platform & Solutions, Red Hat and Transaction Processing. Segment pre-tax income from continuing operations was $1,164 million compared with $1,134 million in the year-ago quarter for respective margins of 19.7% each. The company is witnessing healthy hybrid cloud adoption by clients and solid demand trends across RedHat, automation, data in AI and security.
Consulting: Revenues were $4,962 million, up from $4,829 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 $382 million compared with $348 million in the year-ago quarter, driven by productivity enhancement initiatives for respective margins of 7.7% and 7.2%.
Infrastructure: Revenues were $3,098 million, down from $3,219 million, as healthy demand for zSystems was more than offset by lower demand for Distributed Infrastructure and support services. Segment pre-tax income was $216 million compared with $199 million in the year-ago quarter for respective margins of 7% and 6.2%.
Financing: Revenues improved to $196 million from $154 million. Segment pre-tax income was $100 million compared with $84 million in the year-ago quarter for respective margins of 51.3% and 54.6%.
Cash Flow & Liquidity
During the first quarter, IBM generated $3,774 million in cash from operations compared with $3,248 million in the year-ago quarter. Free cash flow was $1,340 million in the quarter, up from $1,240 million in the prior-year period, driven by higher profit and working capital efficiencies. As of Mar 31, 2023, the company had $9,337 million in cash and cash equivalents with $53,826 million of long-term debt.
Outlook
For full-year 2023, the company expects 3-5% revenue growth on a constant currency basis. Free cash flow is estimated to be approximately $10.5 billion.
Here are some better-ranked stocks from the broader industry.
Arista Networks, Inc. (ANET - Free Report) , carrying a Zacks Rank #2 (Buy), is likely to benefit from the strong momentum and diversification across its top verticals and product lines. The company has a software-driven, data-centric approach to help customers build their cloud architecture and enhance their cloud experience. Arista has a long-term earnings growth expectation of 14.2% and delivered an earnings surprise of 14.2%, on average, in the trailing four quarters.
It holds a leadership position in 100-gigabit Ethernet switching share in port for the high-speed datacenter segment. Arista is increasingly gaining market traction in 200- and 400-gig high-performance switching products and remains well-positioned for healthy growth in data-driven cloud networking business with proactive platforms and predictive operations.
Juniper Networks, Inc. (JNPR - Free Report) carries a Zacks Rank #2. It has a long-term earnings growth expectation of 7% and delivered an earnings surprise of 1.6%, on average, in the trailing four quarters.
Juniper is leveraging the 400-gig cycle to capture hyperscale switching opportunities inside the data center. The company is set to capitalize on the increasing demand for data center virtualization, cloud computing and mobile traffic packet/optical convergence.
Splunk Inc. , sporting a Zacks Rank #1, is another key pick. San Francisco, CA-based Splunk provides software solutions that enable enterprises to gain real-time operational intelligence by harnessing the value of their data. The company’s offerings enable users to investigate, monitor, analyze and act on machine data and big data, irrespective of format or source, and helps in operational decision making.
Splunk’s software offerings enable users to have deep insight of their data on a real-time basis, thereby making the operational decision-making process faster. It delivered a trailing four-quarter earnings surprise of 131.1%, on average. Splunk has a long-term earnings growth expectation of 24.1%.
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IBM Q1 Earnings Beat, Revenues Miss Despite Cloud Demand
International Business Machines Corporation (IBM - Free Report) reported relatively healthy first-quarter 2023 results, wherein the bottom line beat the Zacks Consensus Estimate. The company witnessed healthy demand for hybrid cloud and AI solutions with a client-focused portfolio and broad-based growth. However, despite top-line improvement on a year-over-year basis, revenues lagged the consensus estimate.
Net Income
On a GAAP basis, net income from continuing operations was $934 million or $1.02 per share compared with $662 million or 73 cents per share in the year-ago quarter. The improvement in GAAP earnings was primarily attributable to top-line growth and lower operating expenses.
Excluding non-recurring items, non-GAAP net income from continuing operations was $1.36 per share compared with $1.40 per share in the prior-year quarter. The bottom line beat the Zacks Consensus Estimate by 9 cents.
International Business Machines Corporation Price, Consensus and EPS Surprise
International Business Machines Corporation price-consensus-eps-surprise-chart | International Business Machines Corporation Quote
Quarter Details
Quarterly total revenues increased to $14,252 million from $14,197 million on strong demand for hybrid cloud and AI, driving growth in Software and Consulting segments. On a constant currency basis, revenues were up 4.4% year over year. The top line missed the consensus estimate of $14,274 million.
Gross profit was $7,509 million compared with $7,335 million in the prior-year quarter, resulting in respective gross margins of 52.7% and 51.7% owing to a strong portfolio mix. Total expenses decreased to $6,451 million from $6,712 million, driven by improvements in the business mix and ongoing productivity initiatives.
Segmental Performance
Software: Revenues improved to $5,921 million from $5,772 million, driven by growth in Hybrid Platform & Solutions, Red Hat and Transaction Processing. Segment pre-tax income from continuing operations was $1,164 million compared with $1,134 million in the year-ago quarter for respective margins of 19.7% each. The company is witnessing healthy hybrid cloud adoption by clients and solid demand trends across RedHat, automation, data in AI and security.
Consulting: Revenues were $4,962 million, up from $4,829 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 $382 million compared with $348 million in the year-ago quarter, driven by productivity enhancement initiatives for respective margins of 7.7% and 7.2%.
Infrastructure: Revenues were $3,098 million, down from $3,219 million, as healthy demand for zSystems was more than offset by lower demand for Distributed Infrastructure and support services. Segment pre-tax income was $216 million compared with $199 million in the year-ago quarter for respective margins of 7% and 6.2%.
Financing: Revenues improved to $196 million from $154 million. Segment pre-tax income was $100 million compared with $84 million in the year-ago quarter for respective margins of 51.3% and 54.6%.
Cash Flow & Liquidity
During the first quarter, IBM generated $3,774 million in cash from operations compared with $3,248 million in the year-ago quarter. Free cash flow was $1,340 million in the quarter, up from $1,240 million in the prior-year period, driven by higher profit and working capital efficiencies. As of Mar 31, 2023, the company had $9,337 million in cash and cash equivalents with $53,826 million of long-term debt.
Outlook
For full-year 2023, the company expects 3-5% revenue growth 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.
Here are some better-ranked stocks from the broader industry.
Arista Networks, Inc. (ANET - Free Report) , carrying a Zacks Rank #2 (Buy), is likely to benefit from the strong momentum and diversification across its top verticals and product lines. The company has a software-driven, data-centric approach to help customers build their cloud architecture and enhance their cloud experience. Arista has a long-term earnings growth expectation of 14.2% and delivered an earnings surprise of 14.2%, on average, in the trailing four quarters.
It holds a leadership position in 100-gigabit Ethernet switching share in port for the high-speed datacenter segment. Arista is increasingly gaining market traction in 200- and 400-gig high-performance switching products and remains well-positioned for healthy growth in data-driven cloud networking business with proactive platforms and predictive operations.
Juniper Networks, Inc. (JNPR - Free Report) carries a Zacks Rank #2. It has a long-term earnings growth expectation of 7% and delivered an earnings surprise of 1.6%, on average, in the trailing four quarters.
Juniper is leveraging the 400-gig cycle to capture hyperscale switching opportunities inside the data center. The company is set to capitalize on the increasing demand for data center virtualization, cloud computing and mobile traffic packet/optical convergence.
Splunk Inc. , sporting a Zacks Rank #1, is another key pick. San Francisco, CA-based Splunk provides software solutions that enable enterprises to gain real-time operational intelligence by harnessing the value of their data. The company’s offerings enable users to investigate, monitor, analyze and act on machine data and big data, irrespective of format or source, and helps in operational decision making.
Splunk’s software offerings enable users to have deep insight of their data on a real-time basis, thereby making the operational decision-making process faster. It delivered a trailing four-quarter earnings surprise of 131.1%, on average. Splunk has a long-term earnings growth expectation of 24.1%.