International Business Machines Corp (NYSE: IBM) reported better-than-anticipated fiscal 2022 second-quarter earnings and revenues. However, the company downwardly revised its FY 2022 free cash flow outlook, while cautioning that the strong US dollar will have a negative impact on its bottom line. Following the results, the stock of IBM closed at $130.88, down $7.25, or 5.25%, from its prior close.
Armonk, New York-based IBM posted second-quarter revenues of $15.54 billion, an increase of 9% from $14.22 billion in the prior year’s similar quarter.
Notably, the strong US dollar had a negative impact of 6% (or $900 million) on the company’s revenue, as per Jim Kavanaugh, CFO of IBM.
For the second quarter, which ended June 30, 2022, the software behemoth recorded a net income of $1.392 billion, or $1.53 per share, an increase from $1.325 billion, or $1.47 a share, in the quarter ended June 30, 2021. Specifically, income from continuing operations was $1.47 billion (or $1.61 per share), compared with $810 million (or $0.90 per share) last year.
Excluding charges, IBM reported Q2 2022 non-GAAP income from continuing operations of $2.105 billion, or $2.31 per share, an increase from the non-GAAP income of $1.456 billion, or $1.61 a share, in Q2 2021.
Analysts surveyed by Refinitiv had anticipated the company would record earnings of $2.27 per share on revenues of $15.18 billion.
Segment wise,
- Software revenues rose by 6% y-o-y to $6.17 billion, but missed the $6.30 billion forecasts of analysts surveyed by StreetAccount.
- Consulting revenues were $4.81 billion, an increase of 10% on a y-o-y basis. The reported figures were higher than the StreetAccount estimates of $4.67 billion.
- Infrastructure revenues surged 19% y-o-y to $4.24 billion, and eclipsed the $3.70 billion estimates of StreetAccount.
- Financing revenues fell to $146 million, from $209 million in the prior-year period.
The company’s gross margin in Q2 2022 fell to 53.40%, from 55.20% in the second quarter of last year. The decline was mainly due to the robust labor market, which affected its consulting division. IBM has stated that it is working on an agreement to realize higher rates from contracts. The company anticipates a full-year pre-tax margin of between 9% and 10%, mirroring a 1% rise from last year.
IBM has cautioned that the strong US dollar will have a negative impact of $3.50 billion on its earnings in FY 2022. Also, citing the strong dollar and suspension of business in Russia, the company downwardly revised its FY 2022 free cash flow projection to $10 billion, a decrease from the prior outlook range of between $10 billion and $10.50 billion issued in April.
Looking ahead, IBM reaffirmed its FY 2022 revenue growth at the top “end of its mid-single digit model.”
The historical price chart indicates that the stock of IBM is trading near its major support at 130. Additionally, the stock is trading above its 50-day moving average, while the Chaikin money flow indicator is showing a positive reading. Therefore, we anticipate the stock to remain in an uptrend in the short term.
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