Earnings Preview: IBM

International Business Machines (IBM) is expected to report Q3 earnings after market close Thursday Oct. 16, with a conference call scheduled for 4:30 pm ET. The consensus estimate is $2.03 for EPS and $25.88B for revenue, according to First Call.

Guidance

On Oct. 8, IBM offered partial Q3 results calling for EPS of 4c, ahead of analyst estimates at the time. Sales were $1B below consensus, but the company reaffirmed its full-year guidance for at least $8.75 per share in profit.

Analyst Views

The company is expected to "flush out" the pre-announced results on the earnings call. Investors will scrutinize IBM's results for any signs that it's been hurt by a heavy exposure to the financial services industry and reliance on the commercial paper market, areas wounded badly by the economic crisis. Investors will also look closely at the number of new contracts IBM signed with customers during Q3. Inking more new deals than analysts expect would send a strong signal that IBM's sales team is still bringing in new business despite deteriorating economic conditions.

BMO Capital Markets says that IBM's Q3 new services bookings could be down roughly 7% from last year. The firm estimates bookings will be in the range of $11B at actual exchange rates, compared with $11.8B a year ago. BMO says, "We believe that short-term signings were more negatively impacted than longer-term signings," and adds signings "close to flat or better than last year" would be seen as a positive by investors.

On Oct. 15, JP Morgan upgraded IBM to an Overweight as it believes the company is well positioned to navigate the macroeconomic distress that could pressure IT spending given the company's diverse revenue streams.

Cowen believes the company will focus on earnings estimates and be much less supportive of forecasts on the revenue line, due to macro conditions. For Q4, Cowen had trimmed its estimates to $29.4B and $3.02, below consensus $29.83B and $3.06.