IBM earnings and 2019 guidance beat estimates — stock jumps

IBM shares rose as much as 7 percent after the company reported better-than-expected full-year guidance and fourth-quarter results on Tuesday.

Here are the key numbers:

  • Earnings: $4.87 per share, excluding certain items, vs. $4.82 per share as expected by analysts, according to Refinitiv.
  • Revenue: $21.76 billion, vs. $21.71 billion as expected by analysts, according to Refinitiv.

Revenue fell 3 percent year over year, according to a statement. The company has now reported revenue declines for two consecutive quarters.

For all of 2018, IBM generated $13.81 in earnings per share, excluding certain items. Analysts had expected $13.78 per share for the period, according to Refinitiv.

IBM’s largest business segment, Technology Services and Cloud Platforms, posted $8.9 billion in revenue. Analysts polled by FactSet were expecting $9.04 billion in revenue from the segment.

The next-largest business segment, Cognitive Solutions, did $5.5 billion in revenue. That exceeded the FactSet consensus estimate, which was $5.27 billion.

IBM’s Global Business Services segment collected $4.3 billion in revenue, exceeding the $4.15 billion estimate, and the Systems segment came in at $2.6 billion, below the $2.77 billion estimate. The Global Financing segment contributed $402 million in revenue, under the $426 million estimate.

In the quarter IBM announced its intent to pay $34 billion to acquire Red Hat, announced a chip manufacturing deal from Samsung and sold software assets to HCL Technologies for $1.8 billion. The Red Hat deal is expected to close in the second half of 2019.

“The deal propels IBM as a leading cloud provider and significantly improves its competitive positioning relative to Amazon, Microsoft and Google …. However, based on conversations we have had with investors, the concern has been around the ability for the combined entity to retain Red Hat employees and that IBM may have overpaid at 32x EV/FCF (CY19) for the assets despite the acquisition’s transformational potential,” KeyBanc Capital Markets analyst Arvind Ramnani wrote in a note distributed to clients on Thursday.

In 2018 the company got $39.8 billion in revenue, or about half of the total — from areas it calls strategic imperatives, which are social, mobile, analytics and cloud. Cloud revenue of $19.2 billion for the year was up 12 percent.

With respect to guidance, IBM said it’s looking to generate at least $13.90 in earnings per share, excluding certain items, in all of 2019. Analysts were expecting IBM to forecast $13.79 in earnings per share, excluding certain items, for 2019, according to Refinitiv. The company’s free cash flow estimate of $12 billion for 2019 was under the $12.97 billion FactSet estimate.

“We believe the ongoing growth of the Strategic Imperatives unit will return IBM to organic growth in 2019 despite … currency headwinds,” Nomura Instinet analysts led by Jeffrey Kvaal wrote in a Jan. 15 note.

IBM stock is up 7 percent since the beginning of the year.

Executives will discuss results with analysts on a conference call at 5 p.m. Eastern time.

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