IBM Earnings – What to Watch Out For?

Despite a difficult macroeconomic backdrop and downturn in other conventional operations, the company, which has beaten average revenue estimates for the past five quarters, is anticipated to have earned greater aggregate sales year over year.

There are plenty of reasons why investors should continue to keep a watch on this dynamic company as it continues to navigate through an industrial environment that continues to shift, including the innovative goods and services it offers as well as the strategic alliances it has formed with other important players in the sector.

Despite some recent swings in financial performance and stock price forecasts, many analysts say IBM still has plenty of room for development and profitability in today’s fast changing technology world.

Are IBM’s shares a buy right now considering rising costs and global headwinds? Let’s take a look at what the company faces in the near term and what it might mean for its earnings and share performance.

Last Quarter Recap

IBM’s earnings per share (EPS) for the quarter ending December 2022 came in at $3.60, which was just a hair short of average expectations of $3.61. The company reported sales for the quarter of $16.69 billion, surpassing analysts’ projections of $16.38 billion, and on an annualized basis, the fourth quarterly revenue was unchanged from the previous year.

A bright spot of the quarter, after adjusting for currency fluctuations, was IBM’s consulting division, which showed the most growth. The increase in sales was over 9%, at $4.8 billion. The infrastructure division’s sales increased by 7.4%, with the largest increase coming from the software business, which saw an increase of 8%, to $7.3 billion. Sales of infrastructure reached $4.5 billion.

At the time of the earnings release in late January, IBM forecasted a rise in constant currency revenues for the full year of 2023 in line with its mid-single-digit model, and a consolidated free cash flow of around $10.5 billion, which is an increase of more than $1 billion from the previous year.

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Despite the relatively positive results the company’s share price dropped by 4.5% at the time, closing at $134.45.

Workforce Cuts in Q1

Following in the footsteps of a long list of other corporations that have dismissed thousands of people in recent months, IBM announced back in January that it would be cutting 3,900 positions, which at the time accounted for around 1.5 percent of its worldwide workforce.

IBM suggested that the layoffs, which are connected to the separation of its Kyndryl business and a portion of its AI unit, Watson Health, would result in a charge of $300 million for the period of January to March.

During the earnings call, Chief Financial Officer, James Kavanaugh suggested that the company had incurred some residual expenses due to a number of significant portfolio actions taken over the past few years. He implied that the first quarter of this year was when these lingering stranded expenses would be addressed.

What to Expect From Q1 Earnings

One of the main growth drivers in Q1 for IBM is anticipated to come from the company’s core software and services divisions. Roughly 40% of overall sales came from software last year, and that number increased by roughly 8% in constant currency terms in the fourth quarter because of the success of the Software Development company, Red Hat and automation businesses.

The enormous portfolio of open-source technologies, hybrid cloud platform, and sizable developer community that Red Hat brought to IBM after its 2019 $34 billion acquisition has made it a major factor in the company’s success. The company has also signed new cooperation agreements with Oracle and SAP, increasing Red Hat’s reach during the last quarter. The software industry as a whole will be closely watched by investors, but specifically the Data & AI divisions.

According to the Zacks Consensus Estimate, the company will bring in $14,286 million in sales this year, up from $14,197 million in the prior year’s same period. Consensus estimates for this quarter’s profit have dropped to $1.27 per share from $1.40 in the same period last year.

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This article was originally posted on FX Empire

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