International Business Machines Corp. shares rose in the extended session Wednesday after Big Blue topped earnings estimates and software sales expectations, while reiterating its free-cash-flow forecast for the year on “neutral” revenue growth.
IBM IBM, -1.14% shares rose 3% after hours, following a 1.1% decline in the regular session to close at $126.32.
The company reported first-quarter net income of $927 million, or $1.02 a share, compared with $733 million, or 82 cents a share, in the year-ago period. Adjusted earnings, which exclude stock-based compensation expenses and other items, were $1.36 a share, compared with $1.40 a share in the year-ago period.
IBM, which now receives about three-quarters of its revenue from tech services, reported revenue barely rose to $14.25 billion from $14.2 billion in the year-ago quarter.
Analysts surveyed by FactSet had forecast $1.26 a share on revenue of $14.35 billion. Prior to the earnings report, one analyst had said IBM would have to turn in “nearly pristine” results to support the stock.
“Our first-quarter results demonstrate that clients continue turning to IBM for our unique combination of an open hybrid cloud platform, enterprise-focused AI, and business expertise to unlock productivity and drive efficiency in their operations,” said Arvind Krishna, IBM chairman and chief executive , in a statement. “This gives us confidence in our current growth expectations for revenue and free cash flow for the year.”
Even though IBM posted its biggest sales increase in nearly a decade while cutting thousands of jobs a quarter ago, analysts were laser-focused on free-cash flow, or FCF. For the first quarter, that came in at $1.3 billion, while analysts expected $1.6 billion.
IBM reported $5.92 billion in software revenue for the first quarter, while analysts forecast $5.83 billion; $4.96 billion in consulting revenue, versus the Street’s $5 billion; and $3.1 billion in infrastructure revenue, just below the consensus $3.19 billion.
IBM said it expects revenue growth will be “neutral” for the year compared with last year’s $60.53 billion, given current exchange rates, and reiterated its forecast of $10.5 billion in FCF.
Analysts had estimated $2.07 a share on revenue of $15.78 billion for the second quarter, and $9.45 a share on revenue of $62.7 billion for the year. Analysts currently expect $10.45 billion in FCF for the year.
Over the past year, IBM has warned about currency headwinds because of strength in the dollar, with the U.S. Dollar Index DXY, +0.18% reaching a 52-week high in mid-September. Currently, the dollar index is only up 1%, compared with 12 months ago.
IBM shares have slipped 2.2% over the past 12 months, and are down 10.3% year to date. Meanwhile, the Dow Jones Industrial Average DJIA, -0.23%, which counts IBM among its 30 components, is up 2.3% year to date, while the S&P 500 index SPX, -0.01% is up 8.2%, and the tech-heavy Nasdaq Composite Index COMP, +0.03% has gained more than 16%.
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