IBM Profit Beats Forecasts; Company Boosts Guidance
IBM nudged up its outlook for the full year and reported stronger-than-expected results as more companies bolstered spending on software and consulting on hopes of a sustained recovery for the technology sector.
Shares of IBM, however, fell more than 2 percent in late trading, with some analysts pointing to profit-taking after recent gains, while others said the company's gross margin was slightly below expectations. Get after-hour quotes for IBM here.
"IBM's shares have been particularly strong over the past week with investors anticipating the strong results, so there could be some near-term profit taking,'' said Edward Jones analyst Andy Miedler. "However, I think these results are strong. We like to see they have the confidence in their business so early in the year.''
The technology bellwether reported a profit of $1.97 a share in the first quarter, up from $1.70 a share last year.
Sales at IBM rose 5 percent to $22.9 billion, up from $21.7 billion last year, accelerating from a 1 percent year-on-year gain in the previous quarter.
IBM was expected to report a profit of $1.93 a share on sales of $22.75 billion, according to a consensus estimate compiled by Thomson Reuters.
IBM also said it now expects to earn "at least" $11.20 a share in 2010. Previously, its profit guidance was at least $11 or more.
Analysts who follow the company on average expected IBM to turn in a profit of $11.12 a share.
Some analysts were slightly disappointed by IBM's quarterly gross margin of 43.6 percent.
Collins Stewart analyst Louis Miscioscia had forecast 44.2 percent, but even he kept a "buy" rating and $160 price target on the stock after the results.
Analysts said they were particularly impressed by its 18 percent rise in consulting services signings and 11 percent rise in software revenue.
IBM over the past decade has been shifting its focus from increasingly commoditized hardware to more lucrative software, IT services and consulting businesses.
"Margins were slightly below what we expected but they made up for it in other areas. Importantly, we saw continued momentum in software and consulting that to me was important," said Peter Misek, analyst at Canaccord Adams. "This wasn't a blockbuster or blowout report but it was solid."
Chief Financial Officer Mark Loughridge said the consulting deals it had recently won showed customers were now more willing to make longer-term investments in their business. Many had been focused on short-term, cost-cutting measures in the wake of the financial crisis.
"We're starting to see a shift in customer buying patterns toward more transformational offerings, which are reflected primarily in our consulting business,'' he said on call with analysts.
Revenue growth was fairly consistent across geographic segments, it said, adding that government spending provided tail wind.
While services revenue rose 4 percent and systems and technology revenue rose 5 percent, although services signings fell 2 percent, IBM said.
IBM stock, a component of the Dow Jones Industrial Average, finished Monday's New York Stock Exchange session more than 1 percent higher.