IBM Shares Fall After Full-Year Profit Forecast Misses Estimates

International Business Machines Corp. reported full-year profit forecast that missed Wall Street expectations.

The news sent the shares of the company down 6 percent in extended trading.

IBM said it continues to expect adjusted earnings per share of at least $13.80, while analysts were expecting $13.83.

“We delivered exactly what we said 90 days ago. The $13.80 is an ‘at least’ and it’s up 1 to 2 percent year over year,” IBM’s CFO James Kavanaugh told Reuters in an interview.

However, analysts were not impressed by the quality of the earnings. “This is exactly what happened last quarter. But again the quality of earnings was not that great,” Wedbush Securities analyst Moshe Katri said.

“It’s not necessarily about topline growth, its about profitable growth.”

Katri said IBM’s legacy hardware business continues to hurt margins growth and its business, which the company calls strategic imperatives and includes the contribution of cloud computing, has slowed.

IBM has in recent years shifted focus to high-margin businesses — such as cloud, cybersecurity and data analytics — to counter a slowdown in its legacy businesses.

IBM’s revenue grew 5 percent to $19.07 billion in the quarter with 65 percent growth in sales from security services. Cloud revenue grew 25 percent.

However, net profit fell to $1.68 billion, or $1.81 per share, in the first quarter ended March 31 from $1.75 billion, or $1.85 per share, a year earlier.

Excluding items, the company earned $2.45 per share, beating the analyst average estimate of $2.42, according to Thomson Reuters I/B/E/S.

“We feel very comfortable as we enter the second quarter and the remainder of the year that we can actually deliver moving forward,” Kavanaugh said.

IBM shares, which has risen about 5 percent this year, were down 5.6 percent at $151.85 in extended trading.