IBM's Strategic Imperatives Take the Lead in Q2

Computing big IBM (NYSE:IBM) reported second-quarter outcomes Wednesday night. Big Blue posted modest year-over-year progress on many vital metrics as strategic imperatives finally represented more than half of the company’s overall revenues.

IBM’s second quarter by the numbers


Q2 2018

Q2 2017

Year-Over-Year Change


$ billion

$19.three billion


Net revenue

$2.40 billion

$2.33 billion


GAAP earnings per diluted share




Data supply: IBM.

If you are questioning how earnings per share managed to develop sooner than the internet revenue metric, it is all about share repurchases. IBM purchased again and retired 20 million shares over the previous 4 quarters, lowering the share rely by 2.1% and boosting earnings per share by the identical quantity.

Over the identical interval, Big Blue additionally boosted its quarterly dividend payouts by four.7%. The firm dug into its money reserves to finance these money returns to shareholders since the dividend and buyback budgets in the second quarter added as much as 130% of IBM’s free money flows.

Predictable gross sales progress once more

That three.6% year-over-year income enhance might not appear like a lot, but it surely’s really a part of an vital pattern. IBM has now reported optimistic income progress in every of the previous three quarters, breaking a streak of destructive or flat gross sales strikes stretching all the approach again to the fourth quarter of 2011.

IBM buyers are applauding the newfound progress chops, which had been constructed round the firm’s strategic imperatives. Revenue beneath that cross-divisional banner accounted for $10.1 billion out of IBM’s $20 billion complete in this quarter, marking the first time that these high-growth, high-margin operations stood for greater than half of Big Blue’s complete enterprise.

That combine of information analytics, cellular instruments, cloud computing, digital safety, and social applied sciences has been IBM’s go-to technique since CEO Ginni Rometty took the reins from predecessor Sam Palmisano at the begin of 2012. This technique shift concerned letting go of plenty of IBM’s slower-growing and fewer worthwhile legacy companies. Six years later, the ache is lastly being exchanged for some features.

“We increased revenue, grew pre-tax income double digits, and expanded pre-tax income margins year to year, while continuing to invest in the business and return capital to shareholders,” mentioned CFO Jim Kavanaugh in a ready assertion. “Our performance this quarter underscores the extent to which we have repositioned our business over the last several years.”

A black System Z mainframe system against a stark white background.

A contemporary System Z mainframe. Image supply: IBM.

The gasoline for IBM’s progress engines

Breaking IBM’s outcomes down in different methods, gross sales had been roughly flat yr over yr in the Americas and the Asia-Pacific area. Europe, the Middle East, and Africa delivered four% income progress, led by robust outcomes in massive Western European markets akin to France, Germany, and the U.Ok.

From a enterprise section perspective, three of IBM’s 4 expertise divisions noticed flat or barely destructive gross sales in this report. The outlier this time was the techniques section, the place the lately launched lineup of recent System Z mainframe servers continued to ship robust year-over-year progress. This section reported 23% increased gross sales, led by a 31% enhance in income and greater than double the year-ago interval’s System Z gross sales.

Looking forward, IBM basically reiterated its full-year financial guidance, which requires GAAP earnings of no less than $11.60 per diluted share. Adjusted earnings ought to land above $13.80 per share, and the fiscal yr is shaping up for roughly $12 billion of free money move. The solely change amongst these targets was a $zero.02 enhance in the GAAP earnings ambition.

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