International Business Machines Corporation IBM reported solid second-quarter results, wherein both the bottom and top lines beat the respective Zacks Consensus Estimate. The company witnessed healthy demand trends for hybrid cloud and AI solutions with a client-focused portfolio and broad-based growth and remains firmly on track to reach its targets for 2024.
Net Income
On a GAAP basis, net income from continuing operations was $1.83 billion or $1.96 per share compared with $1.58 billion or $1.72 per share in the year-ago quarter. The improvement in GAAP earnings was primarily attributable to top-line growth.
Excluding non-recurring items, non-GAAP net income from continuing operations was $2.43 per share compared with $2.18 in the prior-year quarter. The bottom line beat the Zacks Consensus Estimate by 27 cents.
International Business Machines Corporation Price, Consensus and EPS Surprise 
International Business Machines Corporation price-consensus-eps-surprise-chart | International Business Machines Corporation Quote
Quarter Details
Quarterly total revenues increased to $15.77 billion from $15.47 billion on strong demand for hybrid cloud and AI, driving growth in the Software and Consulting segments. On a constant currency basis, revenues were up 4% year over year. The top line beat the consensus estimate of $15.58 billion.
Gross profit improved to $8.95 billion from $8.5 billion in the prior-year quarter, resulting in respective gross margins of 56.8% and 54.9% owing to a strong portfolio mix. Total expenses increased to $6.73 billion from $6.5 billion due to higher R&D costs.
Segmental Performance
Software: Revenues improved to $6.74 billion from $6.29 billion, driven by growth in Hybrid Platform & Solutions, Red Hat, Automation and Transaction Processing. The reported segment revenues beat our estimate of $6.61 billion on solid hybrid cloud traction. Segment profit was $2.11 billion compared with $1.75 billion in the year-ago quarter for margins of 31.3% and 27.8%, respectively. The company is witnessing healthy hybrid cloud adoption by clients and solid demand trends across RedHat, automation and generative AI offerings like watsonx.
Consulting: Revenues were $5.18 billion compared with $5.23 billion a year ago as clients prioritized spending and pulled back on discretionary projects. The segment’s revenues missed our estimate of $5.37 billion. Segment profit declined to $463 million from $483 million for respective margins of 8.9% and 9.2%.
Infrastructure: Revenues were $3.64 billion compared with $3.62 billion on broad-based demand for hybrid and distributed infrastructure, especially IBM Z. Segment profit was $654 million compared with $732 million in the year-ago quarter, owing to higher investments in the business across areas like AI, hybrid cloud and quantum, for respective margins of 17.9% and 20.2%.
Financing: Revenues declined to $169 million from $185 million a year ago. Segment profit, however, improved to $77 million from $64 million in the year-ago quarter for respective margins of 45.3% and 34.8%.
Cash Flow & Liquidity
During the quarter, IBM generated $2.07 billion in cash from operations compared with $2.64 billion in the year-ago quarter, bringing the respective tallies for the first six months to $6.23 billion and $6.41 billion. Free cash flow was $2.61 billion in the quarter, up from $2.1 billion in the prior-year period, driven by higher profit and working capital efficiencies. As of Jun 30, 2024, the company had $12.21 billion in cash and cash equivalents with $52.93 billion of long-term debt.
Outlook
For full-year 2024, the company reiterated its revenue growth expectations in the mid-single digit on a constant currency basis. Free cash flow is expected to be in the vicinity of $12 billion.
Zacks Rank
IBM currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Upcoming Releases
Cogent Communications Holdings, Inc. CCOI is scheduled to release second-quarter 2024 earnings on Aug 8. The Zacks Consensus Estimate for earnings is pegged at a loss of $1.02 per share, suggesting a decline of 684.6% from the year-ago reported figure.
Akamai Technologies, Inc. AKAM is slated to release second-quarter 2024 earnings on Aug 8. The Zacks Consensus Estimate for earnings is pegged at $1.54 per share, indicating growth of 3.4% from the year-ago reported figure.
Akamai has a long-term earnings growth expectation of 4.8%. AKAM delivered an average earnings surprise of 5.4% in the last four reported quarters.
Motorola Solutions, Inc. MSI is set to release second-quarter 2024 earnings on Aug 1. The Zacks Consensus Estimate for earnings is pegged at $3.00 per share, implying a growth of 13.2% from the year-ago reported figure.
Motorola has a long-term earnings growth expectation of 9.5%. MSI delivered an average earnings surprise of 7.5% in the last four reported quarters.
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