International Business Machines Corp. reported revenue growth for a second consecutive quarter Monday afternoon, beating expectations and sending shares higher in extended trading.
IBM
IBM,
-0.71%
reported second-quarter net income of $1.33 billion, or $1.47 a share, compared with $1.36 billion, or $1.52 a share, in the year-ago period. Adjusted earnings, which exclude some costs of acquisition and spinoff actions as well as retirement adjustments, were $2.33 a share, compared with $2.18 a share in the year-ago period.
Revenue grew to $18.75 billion from $18.12 billion in the year-ago quarter, a second consecutive quarter of revenue growth for a company that has long been starved of sales increases. Analysts surveyed by FactSet had estimated adjusted earnings of $2.31 a share on revenue of $18.29 billion for the second quarter.
Last quarter, IBM surprised investors by posting a year-over-year revenue gain, snapping a four-quarter streak of declines. Sales gains have been few and far between in recent years for the technology stalwart — sales had declined year-over-year in all but four of the previous 34 quarters before the first-quarter increase — and investors are looking for signs of a reversal this year.
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“A fundamental, long-term rerating is unlikely until investors are convinced IBM can growth at healthier rates (perhaps 3%+) going forward, which may be challenging,” Bernstein analyst Toni Sacconaghi wrote in his preview of the report.
The company reported cloud- and cognitive-software revenue — which includes its Red Hat unit — of $6.1 billion compared with $5.75 billion a year ago, while analysts had been expecting $5.93 billion.
IBM agreed to acquire Red Hat in 2018 at an enterprise value of roughly $34 billion in a quest to develop a strong hybrid-cloud business, and saw former Red Hat Chief Executive Jim Whitehurst step down as president of IBM earlier this month.
Sacconaghi said Red Hat growth would be “a key focus area, given its importance in CEO’s [Arvind] Krishna’s growth plan, a modest deceleration last quarter, and the recently announced departure of former CEO Jim Whitehurst.”
Total cloud revenue, which draws from various business units, grew 13% to $7 billion from a year ago, IBM said. Global technology services, or GTS, posted $6.3 billion in revenue compared with $6.32 billion in the year-ago quarter and the $6.23 billion Street consensus.
Global business services revenue was $4.3 billion, compared with $3.89 billion a year ago, and Street forecasts of $4.03 billion. Systems revenue was $1.7 billion, compared with $1.85 billion a year ago and analysts’ expectations of $1.71 billion.
IBM shares increased more than 3% in after-hours trading following the release of the report, after closing with a 0.5% decline at $138.18 in a rough day for the markets. The stock has gained 9.6% so far this year, as the S&P 500 index
SPX,
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has increased 15.2% and the Dow Jones Industrial Average
DJIA,
-2.09%
— which counts IBM as a component — has added 13.3%.
