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IBM (IBM) Up 2.1% Since Last Earnings Report: Can It Continue?
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It has been about a month since the last earnings report for IBM (IBM - Free Report) . Shares have added about 2.1% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is IBM due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
IBM’s Q2 Earnings & Revenues Beat Estimates on Solid Demand
International Business Machines Corporation reported solid second-quarter results, wherein both the bottom and top lines beat the respective Zacks Consensus Estimate. The company witnessed healthy demand trends for hybrid cloud and AI solutions with a client-focused portfolio and broad-based growth and remains firmly on track to reach its targets for 2024.
Net Income
On a GAAP basis, net income from continuing operations was $1.83 billion or $1.96 per share compared with $1.58 billion or $1.72 per share in the year-ago quarter. The improvement in GAAP earnings was primarily attributable to top-line growth.
Excluding non-recurring items, non-GAAP net income from continuing operations was $2.43 per share compared with $2.18 in the prior-year quarter. The bottom line beat the Zacks Consensus Estimate by 27 cents.
Quarter Details
Quarterly total revenues increased to $15.77 billion from $15.47 billion on strong demand for hybrid cloud and AI, driving growth in the Software and Consulting segments. On a constant currency basis, revenues were up 4% year over year. The top line beat the consensus estimate of $15.58 billion.
Gross profit improved to $8.95 billion from $8.5 billion in the prior-year quarter, resulting in respective gross margins of 56.8% and 54.9% owing to a strong portfolio mix. Total expenses increased to $6.73 billion from $6.5 billion due to higher R&D costs.
Segmental Performance
Software: Revenues improved to $6.74 billion from $6.29 billion, driven by growth in Hybrid Platform & Solutions, Red Hat, Automation and Transaction Processing. The reported segment revenues beat our estimate of $6.61 billion on solid hybrid cloud traction. Segment profit was $2.11 billion compared with $1.75 billion in the year-ago quarter for margins of 31.3% and 27.8%, respectively. The company is witnessing healthy hybrid cloud adoption by clients and solid demand trends across RedHat, automation and generative AI offerings like watsonx.
Consulting: Revenues were $5.18 billion compared with $5.23 billion a year ago as clients prioritized spending and pulled back on discretionary projects. The segment’s revenues missed our estimate of $5.37 billion. Segment profit declined to $463 million from $483 million for respective margins of 8.9% and 9.2%.
Infrastructure: Revenues were $3.64 billion compared with $3.62 billion on broad-based demand for hybrid and distributed infrastructure, especially IBM Z. Segment profit was $654 million compared with $732 million in the year-ago quarter, owing to higher investments in the business across areas like AI, hybrid cloud and quantum, for respective margins of 17.9% and 20.2%.
Financing: Revenues declined to $169 million from $185 million a year ago. Segment profit, however, improved to $77 million from $64 million in the year-ago quarter for respective margins of 45.3% and 34.8%.
Cash Flow & Liquidity
During the quarter, IBM generated $2.07 billion in cash from operations compared with $2.64 billion in the year-ago quarter, bringing the respective tallies for the first six months to $6.23 billion and $6.41 billion. Free cash flow was $2.61 billion in the quarter, up from $2.1 billion in the prior-year period, driven by higher profit and working capital efficiencies. As of Jun 30, 2024, the company had $12.21 billion in cash and cash equivalents with $52.93 billion of long-term debt.
Outlook
For full-year 2024, the company reiterated its revenue growth expectations in the mid-single digit on a constant currency basis. Free cash flow is expected to be in the vicinity of $12 billion.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
VGM Scores
At this time, IBM has an average Growth Score of C, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, IBM has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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IBM (IBM) Up 2.1% Since Last Earnings Report: Can It Continue?
It has been about a month since the last earnings report for IBM (IBM - Free Report) . Shares have added about 2.1% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is IBM due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
IBM’s Q2 Earnings & Revenues Beat Estimates on Solid Demand
International Business Machines Corporation reported solid second-quarter results, wherein both the bottom and top lines beat the respective Zacks Consensus Estimate. The company witnessed healthy demand trends for hybrid cloud and AI solutions with a client-focused portfolio and broad-based growth and remains firmly on track to reach its targets for 2024.
Net Income
On a GAAP basis, net income from continuing operations was $1.83 billion or $1.96 per share compared with $1.58 billion or $1.72 per share in the year-ago quarter. The improvement in GAAP earnings was primarily attributable to top-line growth.
Excluding non-recurring items, non-GAAP net income from continuing operations was $2.43 per share compared with $2.18 in the prior-year quarter. The bottom line beat the Zacks Consensus Estimate by 27 cents.
Quarter Details
Quarterly total revenues increased to $15.77 billion from $15.47 billion on strong demand for hybrid cloud and AI, driving growth in the Software and Consulting segments. On a constant currency basis, revenues were up 4% year over year. The top line beat the consensus estimate of $15.58 billion.
Gross profit improved to $8.95 billion from $8.5 billion in the prior-year quarter, resulting in respective gross margins of 56.8% and 54.9% owing to a strong portfolio mix. Total expenses increased to $6.73 billion from $6.5 billion due to higher R&D costs.
Segmental Performance
Software: Revenues improved to $6.74 billion from $6.29 billion, driven by growth in Hybrid Platform & Solutions, Red Hat, Automation and Transaction Processing. The reported segment revenues beat our estimate of $6.61 billion on solid hybrid cloud traction. Segment profit was $2.11 billion compared with $1.75 billion in the year-ago quarter for margins of 31.3% and 27.8%, respectively. The company is witnessing healthy hybrid cloud adoption by clients and solid demand trends across RedHat, automation and generative AI offerings like watsonx.
Consulting: Revenues were $5.18 billion compared with $5.23 billion a year ago as clients prioritized spending and pulled back on discretionary projects. The segment’s revenues missed our estimate of $5.37 billion. Segment profit declined to $463 million from $483 million for respective margins of 8.9% and 9.2%.
Infrastructure: Revenues were $3.64 billion compared with $3.62 billion on broad-based demand for hybrid and distributed infrastructure, especially IBM Z. Segment profit was $654 million compared with $732 million in the year-ago quarter, owing to higher investments in the business across areas like AI, hybrid cloud and quantum, for respective margins of 17.9% and 20.2%.
Financing: Revenues declined to $169 million from $185 million a year ago. Segment profit, however, improved to $77 million from $64 million in the year-ago quarter for respective margins of 45.3% and 34.8%.
Cash Flow & Liquidity
During the quarter, IBM generated $2.07 billion in cash from operations compared with $2.64 billion in the year-ago quarter, bringing the respective tallies for the first six months to $6.23 billion and $6.41 billion. Free cash flow was $2.61 billion in the quarter, up from $2.1 billion in the prior-year period, driven by higher profit and working capital efficiencies. As of Jun 30, 2024, the company had $12.21 billion in cash and cash equivalents with $52.93 billion of long-term debt.
Outlook
For full-year 2024, the company reiterated its revenue growth expectations in the mid-single digit on a constant currency basis. Free cash flow is expected to be in the vicinity of $12 billion.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
VGM Scores
At this time, IBM has an average Growth Score of C, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, IBM has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.