IBM Profit Tops Estimate; Revenue Misses

(RTTNews) - International Business Machines Corp. (IBM) said Monday after the markets closed that its first quarter profit fell 2.4% from last year, as improved margins could not offset a 12% decrease in revenue.

However, the company's quarterly earnings per share, excluding items, came in above analysts' expectations, but its quarterly revenue fell short of analysts' forecast. At the same time, the company reiterated its full year operating earnings outlook.

"In the first quarter we had a strong start to the year. Our strategic imperatives growth rate accelerated, demonstrating the power of our offerings in these new opportunities and contributing to improved revenue performance. Our focus on higher value through portfolio transformation and investment in key areas of the business drove continued margin expansion," said Ginni Rometty, IBM chairman, president and chief executive officer.

IBM shares are currently gaining 0.3% in after hours trading after closing the day's regular trading session at $166.16, up $5.49 or 3.42%. The shares trade in a 52-week range of $149.52 to $196.86.

For the first quarter, Americas revenues fell 3% from last year to $9.3 billion, while Asia-Pacific revenues slipped 18% to $4.1 billion and Europe/Middle East/Africa revenues dropped 19% to $6.1 billion.

Revenues from the company's growth markets fell 16% in the first quarter.

The company's global technology services segment reported first quarter revenue of $7.9 billion, down 11% from a year earlier. Global business services segment's revenue for the quarter fell 13% year-over-year to $4.3 billion. IBM is the world's biggest computer services firm.

The estimated services backlog at the end of the first quarter was $121 billion, flat year to year adjusting for currency and divested businesses.

IBM's software revenue for the fourth quarter fell 8% year-over-year to $5.2 billion.

First quarter revenues from the company's Systems Hardware segment dropped 23% year-over-year to $1.7 billion. Revenues from System z mainframe server products jumped 118% year-over-year. IBM is the world's biggest server maker.

IBM is selling low-margin businesses to improve profitability. Last year, IBM sold its x86 server business to China's Lenovo Group Ltd., the world's largest PC maker, for about $2.3 billion in a cash and stock deal. In October, IBM announced the sale of its Microelectronics business to Globalfoundries, an investment arm of the government of Abu Dhabi, for a cash consideration of $1.5 billion to Globalfoundries, that will be adjusted against working capital.

IBM said earlier this month that it was establishing a Watson Health Cloud that will provide a secure and open platform for physicians, researchers, insurers and companies focused on health and wellness solutions. The company also said it is collaborating with Apple Inc. (AAPL), Johnson & Johnson (JNJ) and Medtronic plc (MDT) to create new health-based offerings that leverage information collected from personal health, medical and fitness devices.

For the first quarter ended March 31, 2015, the Armonk, New York-based technology giant reported net income of $2.33 billion or $2.35 per share, compared to $2.38 billion or $2.29 per share for the year-ago quarter.

Income from continuing operations for the first quarter was $2.42 billion or $2.44 per share, compared to $2.53 billion or $2.43 per share in the prior year quarter.

Excluding items, operating earnings from continuing operations for the first quarter were $2.89 billion or $2.91 per share, compared to $2.79 billion or $2.68 per share in the first quarter of the previous year.

On average, 18 analysts polled by Thomson Reuters expected the company to earn $2.82 per share for the first quarter. Analysts' estimates typically exclude special items.

Gross margin for the quarter improved to 48.2% from 47.8% a year ago on a reported basis, and improved to 49.3% from 48.5% last year on an adjusted basis.

Big Blue's total revenues for the first quarter fell 11.9% to $19.59 billion from $22.24 billion in the same quarter last year. Seventeen analysts had a consensus revenue estimate of $19.73 billion for the first quarter. This marks the 12th straight quarter the company has reported lower revenue.

Looking forward, IBM continues to forecast 2015 operating earnings of $15.75 to $16.50 per share. Analysts currently expect the company to earn $15.89 per share for the full year 2015.

The company last year abandoned its long-held target of making at least $20 per share in operating earnings by 2015.