International Business Machines Corporation (IBM) reported second-quarter earnings below Wall Street expectations after weaker-than-anticipated revenue growth, although its shares rose about 3% following a profit warning issued last week.
The technology company posted adjusted earnings per share of US$2.93, missing analysts’ forecast of US$3.01. Revenue rose 1% year-on-year to US$17.2 billion, falling short of the expected US$17.9 billion.
IBM also lowered its full-year outlook, forecasting constant-currency revenue growth of 4% to 5%, compared with its previous guidance of more than 5%. The midpoint of the revised range is below earlier expectations. However, the company maintained its forecast for free cash flow to increase by around US$1 billion over the full year.
Chief Financial Officer James Kavanaugh said the company encountered revenue headwinds towards the end of the second quarter but remained focused on improving productivity, strengthening its portfolio and generating free cash flow.
Software remained IBM’s strongest-performing business during the quarter. Revenue from the segment increased 5% to US$7.8 billion, supported by an 11% rise in Hybrid Cloud, driven by Red Hat, and a 19% increase in its Data business.
Consulting revenue was unchanged at US$5.3 billion, while Infrastructure revenue declined 7% to US$3.8 billion. The fall was largely attributed to a 42% drop in IBM Z revenue, although this was partly offset by a 37% increase in Distributed Infrastructure.
IBM generated US$2.5 billion in free cash flow during the quarter, down US$300 million from the same period last year. Free cash flow for the first six months of the year totalled US$4.8 billion, unchanged from a year earlier.
Chairman, President and Chief Executive Officer Arvind Krishna said the company remained confident in its long-term strategy and portfolio, adding that IBM was well positioned to capture future growth opportunities.
Despite the weaker quarterly performance, IBM reiterated its expectation of improved pre-tax income margin expansion for the full year.
