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IBM Beats on Q1 Earnings, Withdraws '20 View on Coronavirus Woes
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International Business Machines Corporation (IBM - Free Report) reported first-quarter 2020 non-GAAP earnings of $1.84 per share, which surpassed the Zacks Consensus Estimate by 3.4%. However, the bottom line fell 18% on a year-over-year basis.
Revenues of $17.57 billion missed the Zacks Consensus Estimate by 1.4% and declined 3.4% on a year-over-year basis. At constant currency (cc), the top line remained flat. However, adjusting for currency and divested businesses, the top line improved 0.1%.
Markedly, total Cloud revenues came in at $5.4 billion during the quarter, up 19% year over year. Adjusting for currency and divested businesses, total cloud revenues increased 23%.
Revenues from signings increased 19% (at cc) in the first quarter to $8.9 billion. Backlog remained flat (at cc) on a year-over-year basis and amounted to $107.8 billion.
Notably, shares of IBM are down around 5% as the company witnessed lower adoption of software platforms in March due to coronavirus outbreak. The company has also withdrawn 2020 guidance. The company's stock is down 10.2% in the year-to-date period, compared with industry’s decline of 15.2%.
Synergies from Red Hat Acquisition
Revenues from Red Hat in the first quarter rallied 20% (at cc) on a normalized basis. Infrastructure for Red Hat continued to grow in double-digits. Moreover, OpenShift and Ansible have supported advancements in application and technology developments.
Further, the buyout has helped IBM to enhance containerized software capabilities and accelerate service engagement. Currently, more than 2,200 clients are using Red Hat and IBM’s hybrid cloud platform.
Geographic Revenue Details
Revenues from Americas remained flat year over year (excluding divestiture impacts) and came in at $8.2 billion. Revenues from Europe, Middle-East and Africa were $5.5 billion, up 1% year over year. Meanwhile, revenues from Asia-Pacific remained flat on a year-over-year basis and came in at $3.9 billion.
Cloud & Cognitive Software Segment
Cloud & Cognitive Software segment’s revenues-external rose 5.5% year over year (up 6.8% on cc basis) to $5.2 billion. The upside can be attributed to synergies from Red Hat acquisition and growth in cloud, Data & AI, security and IoT solutions. Markedly, cloud revenues soared 86% to $1.3 billion.
Revenues in the Cloud and Data platforms increased 34% year over year to $2.5 billion. The platform is gaining from Red Hat’s acquisition synergies and traction in Cloud Paks suite.
International Business Machines Corporation Price, Consensus and EPS Surprise
Adoption of cognitive applications and transaction processing platforms in March was affected by the coronavirus outbreak. Revenues from the Cognitive Applications declined 3% year over year to reach $1.2 billion. Revenues from the Transaction Processing Software, which includes software that runs mission-critical workloads, declined 15% on a year-over-year basis to reach $1.5 billion.
Global Business Services Segment
Revenues in the Global Business Services-external segment totaled $4.14 billion, which declined 0.5% (up 0.9% at cc) from the year-ago quarter’s figure.
Consulting revenues increased 5% year over year at cc on solid performance of IBM’s digital business to $2.1 billion. Application Management and Global Process Services revenues declined 2% and 7% (at cc) year over year to reach $1.8 billion and $0.2 billion, respectively.
Global Technology Services Segment
Revenues from Technology Services-external fell 5.9% (down 4% at cc) from the year-ago quarter to $6.47 billion.
Segmental revenues pertaining to cloud advanced 12% at cc from the prior-year quarter’s reported figure to $2.3 billion.
Infrastructure & Cloud Services and Technical Support Services revenues declined 4% and 5% (at cc) year over year to $4.9 billion and $1.6 billion, respectively.
Systems Revenues
Systems revenues-external rose 3% (up 4.1% at cc) on a year-over-year basis to $1.4 billion, primarily owing to growth in the IBM Z and Storage Systems.
Systems Hardware revenues increased 10% (at cc) year over year to $1 billion. Operating Systems Software declined 9% (at cc) year over year to $0.4 billion.
IBM Z revenues surged 61% year over year owing to gains from z15 and higher demand for data privacy and resiliency solutions across hybrid cloud. However, Power revenues fell 32% from the year-ago quarter’s tally.
Storage revenues improved 19% year over year owing to growth in high-end storage systems.
Segmental revenues pertaining to cloud advanced 10% at cc from the prior-year quarter’s reported figure, to $0.4 billion.
Finally, Global Financing (includes financing and used equipment sales) revenues-external fell 26.2% year over year and 24.9% at cc to $299 million.
Operating Details
Non-GAAP gross margin expanded 150 basis points (bps) year over year and came in at 46.2%. The gross margin benefited from synergies from Red Hat acquisition, high-value software, and systems contributions.
Non-GAAP R,D&E expenses increased 13.4% year over year to $1.63 billion.
Non-GAAP selling, general and administration (S,G&A) expenses increased 24.2% year over year to $5.67 billion.
Non-GAAP pre-tax income margin from continuing operations came in at 3.9%, from 12.3% reported in the year-ago period.
Balance Sheet & Cash Flow Details
As of Mar 31, 2020, IBM had $12 billion in total cash and marketable securities compared with $9 billion as of Dec 31, 2020.
Total debt (which includes $22.3 billion from Global Financing debt) was $64.3 billion, compared with $62.9 million reported in the last reported quarter.
The company reported cash flow from operations of $4.5 billion and generated free cash flow of $1.4 billion in the first quarter.
Moreover, the company returned $1.4 billion to shareholders through dividends.
Withdraws Guidance for 2020
For 2020, IBM has withdrawn guidance, citing uncertainty pertaining to coronavirus crisis. The company stated that it will reassess its financial position “based on the clarity of the macroeconomic recovery at the end of the second quarter.”
The company had earlier projected non-GAAP earnings per share to be at least $13.35. The Zacks Consensus Estimate is currently pegged at $11.74 per share.
The long-term earnings growth rate for Netlist, Avid and Zoom is currently pegged at 20%, 15% and 26.56%, respectively.
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IBM Beats on Q1 Earnings, Withdraws '20 View on Coronavirus Woes
International Business Machines Corporation (IBM - Free Report) reported first-quarter 2020 non-GAAP earnings of $1.84 per share, which surpassed the Zacks Consensus Estimate by 3.4%. However, the bottom line fell 18% on a year-over-year basis.
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Revenues of $17.57 billion missed the Zacks Consensus Estimate by 1.4% and declined 3.4% on a year-over-year basis. At constant currency (cc), the top line remained flat. However, adjusting for currency and divested businesses, the top line improved 0.1%.
Markedly, total Cloud revenues came in at $5.4 billion during the quarter, up 19% year over year. Adjusting for currency and divested businesses, total cloud revenues increased 23%.
Revenues from signings increased 19% (at cc) in the first quarter to $8.9 billion. Backlog remained flat (at cc) on a year-over-year basis and amounted to $107.8 billion.
Notably, shares of IBM are down around 5% as the company witnessed lower adoption of software platforms in March due to coronavirus outbreak. The company has also withdrawn 2020 guidance. The company's stock is down 10.2% in the year-to-date period, compared with industry’s decline of 15.2%.
Synergies from Red Hat Acquisition
Revenues from Red Hat in the first quarter rallied 20% (at cc) on a normalized basis. Infrastructure for Red Hat continued to grow in double-digits. Moreover, OpenShift and Ansible have supported advancements in application and technology developments.
Further, the buyout has helped IBM to enhance containerized software capabilities and accelerate service engagement. Currently, more than 2,200 clients are using Red Hat and IBM’s hybrid cloud platform.
Geographic Revenue Details
Revenues from Americas remained flat year over year (excluding divestiture impacts) and came in at $8.2 billion. Revenues from Europe, Middle-East and Africa were $5.5 billion, up 1% year over year. Meanwhile, revenues from Asia-Pacific remained flat on a year-over-year basis and came in at $3.9 billion.
Cloud & Cognitive Software Segment
Cloud & Cognitive Software segment’s revenues-external rose 5.5% year over year (up 6.8% on cc basis) to $5.2 billion. The upside can be attributed to synergies from Red Hat acquisition and growth in cloud, Data & AI, security and IoT solutions. Markedly, cloud revenues soared 86% to $1.3 billion.
Revenues in the Cloud and Data platforms increased 34% year over year to $2.5 billion. The platform is gaining from Red Hat’s acquisition synergies and traction in Cloud Paks suite.
International Business Machines Corporation Price, Consensus and EPS Surprise
International Business Machines Corporation price-consensus-eps-surprise-chart | International Business Machines Corporation Quote
Adoption of cognitive applications and transaction processing platforms in March was affected by the coronavirus outbreak. Revenues from the Cognitive Applications declined 3% year over year to reach $1.2 billion. Revenues from the Transaction Processing Software, which includes software that runs mission-critical workloads, declined 15% on a year-over-year basis to reach $1.5 billion.
Global Business Services Segment
Revenues in the Global Business Services-external segment totaled $4.14 billion, which declined 0.5% (up 0.9% at cc) from the year-ago quarter’s figure.
Consulting revenues increased 5% year over year at cc on solid performance of IBM’s digital business to $2.1 billion. Application Management and Global Process Services revenues declined 2% and 7% (at cc) year over year to reach $1.8 billion and $0.2 billion, respectively.
Global Technology Services Segment
Revenues from Technology Services-external fell 5.9% (down 4% at cc) from the year-ago quarter to $6.47 billion.
Segmental revenues pertaining to cloud advanced 12% at cc from the prior-year quarter’s reported figure to $2.3 billion.
Infrastructure & Cloud Services and Technical Support Services revenues declined 4% and 5% (at cc) year over year to $4.9 billion and $1.6 billion, respectively.
Systems Revenues
Systems revenues-external rose 3% (up 4.1% at cc) on a year-over-year basis to $1.4 billion, primarily owing to growth in the IBM Z and Storage Systems.
Systems Hardware revenues increased 10% (at cc) year over year to $1 billion. Operating Systems Software declined 9% (at cc) year over year to $0.4 billion.
IBM Z revenues surged 61% year over year owing to gains from z15 and higher demand for data privacy and resiliency solutions across hybrid cloud. However, Power revenues fell 32% from the year-ago quarter’s tally.
Storage revenues improved 19% year over year owing to growth in high-end storage systems.
Segmental revenues pertaining to cloud advanced 10% at cc from the prior-year quarter’s reported figure, to $0.4 billion.
Finally, Global Financing (includes financing and used equipment sales) revenues-external fell 26.2% year over year and 24.9% at cc to $299 million.
Operating Details
Non-GAAP gross margin expanded 150 basis points (bps) year over year and came in at 46.2%. The gross margin benefited from synergies from Red Hat acquisition, high-value software, and systems contributions.
Non-GAAP R,D&E expenses increased 13.4% year over year to $1.63 billion.
Non-GAAP selling, general and administration (S,G&A) expenses increased 24.2% year over year to $5.67 billion.
Non-GAAP pre-tax income margin from continuing operations came in at 3.9%, from 12.3% reported in the year-ago period.
Balance Sheet & Cash Flow Details
As of Mar 31, 2020, IBM had $12 billion in total cash and marketable securities compared with $9 billion as of Dec 31, 2020.
Total debt (which includes $22.3 billion from Global Financing debt) was $64.3 billion, compared with $62.9 million reported in the last reported quarter.
The company reported cash flow from operations of $4.5 billion and generated free cash flow of $1.4 billion in the first quarter.
Moreover, the company returned $1.4 billion to shareholders through dividends.
Withdraws Guidance for 2020
For 2020, IBM has withdrawn guidance, citing uncertainty pertaining to coronavirus crisis. The company stated that it will reassess its financial position “based on the clarity of the macroeconomic recovery at the end of the second quarter.”
The company had earlier projected non-GAAP earnings per share to be at least $13.35. The Zacks Consensus Estimate is currently pegged at $11.74 per share.
Zacks Rank & Stocks to Consider
IBM currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader technology sector are Netlist, Inc. (NLST - Free Report) , Avid Technology, Inc. , and Zoom Video Communications, Inc. (ZM - Free Report) , which sport a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The long-term earnings growth rate for Netlist, Avid and Zoom is currently pegged at 20%, 15% and 26.56%, respectively.
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2019, while the S&P 500 gained and impressive +53.6%, five of our strategies returned +65.8%, +97.1%, +118.0%, +175.7% and even +186.7%.
This outperformance has not just been a recent phenomenon. From 2000 – 2019, while the S&P averaged +6.0% per year, our top strategies averaged up to +54.7% per year.
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