the Dow Jones Industrial Average (DJINDICES: ^ DJI) led the charge on Tuesday, up approximately 1.1% at 12:40 pm EDT and outperformed both S&P 500 and the Nasdaq compound by wide margins. While the number of confirmed cases of COVID-19 in the US has declined in recent days, the numbers remain high compared to the previous peak in April.
Actions of International business machines (NYSE: IBM) and Coca Cola (NYSE: KO) It rose on Tuesday after earnings reports from both companies. IBM beat estimates across the board, while Coca-Cola was only able to get mixed results.
Image source: IBM.
IBM does it better than expected
Revenue fell 5.4% to $ 18.1 billion for IBM in the second quarter, with the pandemic hitting the company’s service segments. But that result was $ 400 million better than analysts had expected. Adjusted earnings per share of $ 2.18 also beat estimates by $ 0.09, although the metric was down 31% year-over-year.
Some parts of IBM’s business performed better than others. The cognitive and cloud software segment managed to increase revenue by 3%, thanks in part to the acquisition of Red Hat, and the systems segment enjoyed 6% revenue growth driven by a 68% increase in mainframe sales. Total revenue in the cloud, covering all IBM segments, increased 34% in a constant currency, and Red Hat’s independent revenue increased 18%.
IBM’s two large service segments did not fare as well. Global business services revenue fell 7% year-over-year, and global technology services revenue fell 8%. The company is seeing some customers falling back on discretionary spending, as well as lower volumes from the hardest hit industries.
The drift away from the mix of the lower margin services segments, as well as an improvement in the gross margin of global commercial services, brought IBM’s overall adjusted gross margin to 1.6 percentage points to 49%. However, the pre-tax margin fell 3.8 percentage points to 12.8%.
IBM shares did not receive a big boost from its results on Tuesday, just 0.5% in the early afternoon. A challenging demand environment in the IT industry will likely continue to push IBM’s revenue and earnings.
Coca-Cola reports mixed results
A 28% decrease in revenue topped Coca-Cola’s second-quarter earnings report on Tuesday morning. That decline was slightly worse than expected, with revenue of $ 7.2 billion missing analyst expectations of $ 60 million. The bottom line also fell off a cliff, with adjusted earnings per share falling 33% to $ 0.42. EPS was $ 0.01 higher than the analyst’s average estimate.
There was some good news: Coca-Cola has seen improvements in global volumes since it experienced a 25% decrease in April. Volumes fell just 10% in June, and so far in July volumes are down a half-digit single digit percentage. High channel sales at home are helping the cause, as well as channel sales outside the home.
Coca-Cola expects the second quarter to be the worst quarter of the year, although a high level of uncertainty persists. The recovery in Coca-Cola’s out-of-home sales has been correlated with the reduction in pandemic blocks, but many areas in the US are now experiencing increasing cases of COVID-19. The new restrictions would likely put a brake on the company’s out-of-home sales.
Coca-Cola’s results were viewed favorably by the market, up 2.2% early Tuesday afternoon. Shares of the beverage giant have dropped approximately 17% since the beginning of the year.
