IBM -4.1% AH; buybacks boost EPS, but hardware sales remain weak

IBM is reiterating full-year guidance for EPS of at least $18 (consensus is at $17.84).

Big Blue spent an eye-popping $8.2B on buybacks in Q1, up from $5.8B in Q4. That allowed EPS to nearly meet estimates in spite of a $450M revenue miss. On the other hand, IBM's tax rate (the subject of recent scrutiny) rose to 20% from Q4's 11% and Q3's 16%. A 90 bps Y/Y increase in gross margin to 47.6% also boosted EPS.

Hardware/chip sales remain bleak: They fell 23% Y/Y vs. 26% in Q4.  Software +2% vs. +3%, global technology services -3% vs. -4%, global business services flat vs. +1%, global financing +3% vs. flat. The services backlog stood at $138B at quarter's end, down $5B Q/Q and $3B Y/Y.

Asia-Pac remains a weak spot: Sales fell 12% Y/Y. Americas were down 4%, and EMEA up 4%. "Growth markets" and BRIC sales each fell 11%.

Q1 free cash flow was just $0.6B, well below net income of $2.6B. Cash on hand fell to $9.7B from $11.1B at the end of Q4, and non-global financing debt rose to $15.7B from $12.2B.

Q1 results, PR

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Comments (8)
  • BullishonManagement
    , contributor
    Comments (812) | Send Message
    It's difficult to see how IBM is going to pull out of this dive - financial management of the balance sheet is running out of steam, cost cutting is to an extreme, the employees are uninspired. Now the veils are off and we see a corporation in trouble - inside and out... the question is how long will this elephant take to die.
    16 Apr 2014, 04:37 PM Reply Like
  • Mike Maher
    , contributor
    Comments (2866) | Send Message
    FCF of $600 mil seems absurdly low to me, given the size of this company. No thanks.
    16 Apr 2014, 04:48 PM Reply Like
  • rjbrown98
    , contributor
    Comments (5) | Send Message
    I have Six Options that expire this week-end if the stock is above $190.00 and lets have a party? Rick
    16 Apr 2014, 04:59 PM Reply Like
  • slam stocks
    , contributor
    Comments (1454) | Send Message
    Not pretty numbers, but the best time to buy is during a turnaround and will continue to suffer more pain accumulating shares. Good luck to the Longs that want to stay with me, but totally understand investors leaving this ship for better investment vehicles.
    16 Apr 2014, 05:43 PM Reply Like
  • King Rat
    , contributor
    Comments (1835) | Send Message
    I rarely suggest buying the dip, but as long as you're not overloaded in IBM (>20% of a portfolio in any stock), you will probably outperform the market over the next year.




    Quarterly EPS down 10% but annual estimates for the year up 20%.
    Management is telegraphing that the downturn is ending and a new boom cycle is about to begin.
    16 Apr 2014, 06:29 PM Reply Like
  • King Rat
    , contributor
    Comments (1835) | Send Message
    I meant a boom for IBM, not a booming economy overall.
    16 Apr 2014, 06:33 PM Reply Like
  • gugu09
    , contributor
    Comments (5) | Send Message
    They have been talking about that for the last 8 quarters; soon you will realize it's just all talks and talks; unless they get rid of the CEO, long term, the stock will see $150/share, longer term, below $100/share.
    16 Apr 2014, 10:40 PM Reply Like
  • Investing Doc
    , contributor
    Comments (1038) | Send Message
    If the price does dive to less than $150 / share I might consider buying with both hands. Less than $100 and that beeping sound you hear would be... Well, you can probably guess.
    18 Apr 2014, 10:28 AM Reply Like
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