Tags: ibm | profit | forecast | earnings

IBM Raises Annual Forecast After Second Quarter Beats Estimates

Wednesday, 18 Jul 2012 04:52 PM

International Business Machines Corp., the world’s biggest computer-services provider, raised its full-year earnings forecast after second-quarter profit topped estimates.

Operating earnings will increase to at least $15.10 a share this year, Armonk, New York-based IBM said in a statement, boosting its previous forecast of at least $15. Analysts had predicted $15.06 on average, according to data compiled by Bloomberg. Earnings were $3.51 in the quarter, topping the $3.43 average estimate.

Boosting the forecast is “a validation of their strategy and a positive shot in the arm for tech stocks as a whole,” said Ed Maguire, an analyst with Credit Agricole Securities in New York. The move suggests that demand may strengthen for information technology in general, he said.

“They are really a proxy for global enterprise IT because they’re so globally distributed,” Maguire said.

Even so, IBM sales fell 3 percent to $25.8 billion, dragged down by sluggish demand for hardware. Analysts predicted $26.3 billion, the average of estimates compiled by Bloomberg.

Chief Executive Officer Ginni Rometty is working to make software account for half of earnings by 2015 because the area is more profitable than the hardware business. With that shift, along with other moves such as stock buybacks and acquisitions, IBM is trying to keep earnings stable through the economic headwinds in Europe and a slowdown in China, said Amit Daryanani, an analyst with RBC Capital Markets in New York.

‘Levers’

“They’re continuing to execute on things that have worked for them in the past,” he said. “They have a lot of levers, like accelerating cost savings or doing more aggressive buybacks, to reach their numbers.”

IBM shares were little changed in extended trading. They had climbed 2.5 percent to $188.25 at the close in New York. The stock has advanced 2.4 percent this year.

Rometty has a five-year plan that targets annual operating earnings of at least $20 a share by 2015, up from $13.44 last year. The company expects software to make up half of that total profit. Analytics software, which helps businesses predict trends, is seen generating $16 billion in sales by 2015, while cloud computing will account for $7 billion.

IBM has used buybacks to reduce its share count by a third since 2000 and boosted its repurchase plan by $7 billion in April. That has helped the company lift its earnings per share and stock price and won praise from investors such as Warren Buffett.

IBM’s sales in Europe, the Middle East and Africa were worth less when converted to dollars in the second quarter, as the euro declined about 12 percent from a year earlier. The credit crisis in the region also hurt revenue.

“IBM hedges for that quite a bit, but currency got ugly,” Maguire said.

Formerly IBM’s sales and marketing head, Rometty, 54, succeeded Sam Palmisano in January. She became the first female CEO in the company’s 100-year history. Palmisano, who had been CEO since 2002, remains chairman.


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