International Business Machines Corp.
) reported earnings per share of $3.99 in the third quarter of
2013, which surpassed the Zacks Consensus Estimate of $3.95.
Revenues fell short of the consensus mark in the reported
quarter. Despite the revenue miss, IBM posted a decent outlook
for the full year.
IBM's third quarter revenues of $23.72 billion missed the Zacks
Consensus Estimate of $24.78 billion. Revenues declined 4.1% from
the year-ago quarter. On a constant currency (cc) basis, revenues
declined 2.0% from the year-ago quarter.
Except Global Business Service, Software and Global financing
all other segment revenues declined on a year-over-year
basis. Software increased 0.6% (up 2.0% on cc) year over
year to $5.79 billion. Growth in the Software segment was mainly
fueled by the key branded middleware.
Global Technology Services revenue decreased 4.3% year over
year to $9.49 billion. Global Business Services segment revenues
remained flat, although it moved up by 5.0%, on a constant
currency basis to reach $4.6 billion.
Services backlog at the end of the third quarter was up 2.0%
year over year to $141.0 billion. The company continues to
witness a decline in outsourcing revenues due to sales into
existing base accounts and also from the structural work that the
company did previously on low margin contracts.
Hardware/System & Technology revenues (including retail
store solutions) were down 17.0% (down 16.0% in constant
currency) year over year to $3.2 billion in the quarter.
In the Hardware segment, revenues from System x declined 18.0%
whereas System Storage declined 11.0%. However, revenues from
System z mainframe server products increased 6.0% compared with
the year-ago period. This apart, Microelectronics OEM revenues
Global Financing revenues increased 6.5% year over year to
$502.0 million in the reported quarter.
Region wise, revenues from the Americas' during the third
quarter were $10.3 billion, down 1.0% from the year-ago quarter.
This apart, Asia-Pacific revenues declined 15.0% to $5.5 billion
whereas OEM revenues were down 1.0% year over year to $534
million. EMEA revenues, however increased 1.0 % to $7.3
Revenues from growth markets declined 9.0% while revenues from
BRIC countries such as Brazil, Russia, India and China
declined 15.0% year over year.
Gross margin expanded 1.0 percentage point from the year-ago
quarter. The improvement in gross margin was primarily driven by
favorable service margins and the relative strength of software
The company reported total expense and other income of $6.4
billion, which decreased 0.3%. SG&A expense was $5.0 billion,
which decreased 10.1% year over year. Whereas, R,D&E expense
of $1.45 billion which declined 5.5% compared with the year-ago
Net income was $4.4 billion were $3.99 per share, which
declined 5.6% from $4.2 billion or $3.62 reported in the year-ago
quarter. However, excluding the workforce rebalancing charges,
earnings per share were $3.91.
Balance Sheet & Cash Flow Details
IBM ended the quarter with $10.23 billion in total cash and
marketable securities, compared with $10.36 billion in the
previous quarter. At the end of the third quarter, total debt was
$36.18 billion compared with $34.10 billion in the prior
IBM reported cash flow from operations (excluding Global
Financing receivables) of $3.28 billion versus $3.60 billion in
the previous quarter. In the reported quarter, IBM generated free
cash flow of $2.2 billion, flat compared to the previous
IBM returned $3.0 billion to shareholders through $1.0 billion
in dividends and $1.9 billion of share repurchases.
IBM forecasts fiscal 2013 EPS of $15.01, including workforce
rebalancing charges. operating non-GAAP EPS of $16.25.
IBM reported a mediocre third quarter result, with a modest
outlook. This will help it to win back investor confidence going
forward. We believe that IBM's decent backlog, improving
outsourcing signings and new contract wins will boost the top
line going forward.
However, slowing top-line growth in BRIC and growth markets is
a headwind in our view. Additionally, sluggish IT spending and
strong competition from the likes of
) are the major concerns going forward.
EMC CORP -MASS (EMC): Free Stock Analysis
HEWLETT PACKARD (HPQ): Free Stock Analysis
INTL BUS MACH (IBM): Free Stock Analysis
ORACLE CORP (ORCL): Free Stock Analysis
To read this article on Zacks.com click here.
Currently, IBM has a Zacks Rank #3 (Hold).