International business machines (IBM) – Get report Shares rose higher on Tuesday after the cloud-focused tech group posted stronger-than-expected second-quarter earnings under new CEO Arvind Krishna.
IBM said adjusted operating profit for the three months ending June fell 31.2% from a year ago to $ 2.18 a share, but beat the Street consensus forecast by more than 10 cents. The group’s revenues were also lower than last year, 5.5% less than $ 18.1 billion, but were again above analyst estimates thanks in part to a 30% increase in company revenues. cloud, at $ 6.3 billion, and a firm account of its cloud and cognitive software division, one of two new group reporting structures established last year.
Free cash flow generation also impressed, growing 15% yoy and breaking several quarters under the previous executive team, while margins and cash receipts improved.
IBM did not provide a short-term earnings guide, after obtaining its full-year forecast for April 21, “given the uncertainty in the environment and consistent with our guidance for the last quarter,” according to CFO Jim Kavanaugh.
“It goes without saying that this is a unique and challenging time for our customers. To continue to be your most trusted partner, we are spending a lot of time and energy to dramatically simplify the way our equipment goes to market,” said CEO Krishna, who took over from Ginni Rometty’s departure earlier this year, during a conference call with investors late Monday. “We are working hard in the back-end to bring our portfolio together in a more consistent way, so that our teams can present simpler and more relevant proposals.”
“We are also focused on changing our culture and operating model, so that we can make decisions more quickly and make our interactions with customers much more experiential,” he added. “In the future, we will continue to take steps to improve our operating model and accelerate our strategic priorities so that we can emerge stronger.”
IBM shares were marked 3% higher in Tuesday’s first trades to switch hands at $ 130.03 each, the highest since early March and a move that would cut the stock’s annual decline to around 1%.
“We do not believe that the IBM quarter will influence investors to change positions, either positive or negative. IBM’s revenue was moderately higher than our estimates, but comfortably above consensus,” said analyst at BMO Capital Markets. Keith Bachman, who has a market performance rating with a Target Price of $ 140 per share.
“Free cash flow margin was solid at 15.9%. However, organic growth without Red Hat, divestments and FX decreased by approximately 7% y / y, and less excluding mainframes, which we do not consider a lasting source of growth “he added. . “We choose to remain on the sidelines until we are confident that IBM can sustain positive organic earnings growth.”
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