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IBM is “confident” it can deliver full-year revenue growth, said CEO Arvind Krishna.
Ethan Miller / Getty Images
IBM
delivered better than expected first quarter financial results and reiterated its forecast that revenues for 2021 will increase from 2020 onwards.
Shares of IBM (ticker: IBM) were up 4.5% to $ 138.92 during out of hours trading.
For the quarter, the enterprise computing giant posted sales of $ 17.7 billion, up 1%, but down 2% on a constant exchange rate basis, and The Street at $ 17.3 billion. Non-GAAP earnings were $ 1.77 per share, higher than Street’s consensus forecast of $ 1.63 per share. That compares to revenue of $ 17.6 billion and non-GAAP earnings of $ 1.84 per share in the same quarter a year ago. On a GAAP basis, the company earned $ 1.06 per share, compared to $ 1.31 per share a year ago.
“Strong performance this quarter in the cloud, driven by increasing customer acceptance of our hybrid cloud platform, and growth in software and consulting have enabled us to make a solid start to the year,” said CEO Arvind Krishna a statement. “While we have more work to do, we are confident that we can deliver full year revenue growth and meet our adjusted free cash flow target by 2021.”
The company said revenue in its cloud and cognitive software segment was $ 5.4 billion, up 3.8%, or 0.8% adjusted for currency. Global Business Services segment revenue was $ 4.2 billion, up 2.4% but down 1.4%, adjusted for currency.
Global Technology Services revenue was $ 6.4 billion, down 1.5%, or 5.3% adjusted for currency. Systems revenues, including hardware, were $ 1.4 billion, an increase of 4.3%, or 2.2% based on currency adjustment. Global financing income was $ 240 million, down 20% or 21.9% currency-adjusted.
Total cloud revenue was $ 6.5 billion, up 21%, or 18% adjusted for currencies and divestments. Red Hat’s revenues were up 17%, or 15% currency-adjusted.
Gross margin in the first quarter was 47.3% on a non-GAAP basis, up 110 basis points, or 46.3% on a GAAP basis, up 120 basis points.
IBM said it has paid off $ 5.1 billion in debt since the end of 2020, bringing its total debt down to $ 56.4 billion. IBM has paid off $ 16.6 billion in debt since it acquired Red Hat in 2019.
IBM reiterated its earlier forecast for the full year 2021, adjusted free cash flow of $ 11 billion to $ 12 billion, with revenues ahead of 2020. The company continues to expect sustained mid-digit growth once it enters Kyndryl’s upcoming spin. managed services company. The company has not provided new details on the spin, but still expects the transaction to be completed by the end of 2021.
CFO James Kavanaugh noted in an interview with Barron’s that revenue in the quarter was about $ 400 million higher than Street’s expectations, with broad strength in hardware, software and services. He pointed out that revenue from the company’s cloud business was $ 26 billion in the past 12 months, and now accounts for more than a third of IBM’s business.
Kavanaugh said IBM expects to file a Form 10 filing with the Securities and Exchange Commission in mid to late summer detailing the post-spin income statements and balance sheets on a pro forma basis for both Kyndryl and “Stayco”. He expects Kyndryl’s first quarter of earnings as an independent company in the first quarter of 2022. He said he expects Kyndryl to aim for an investment-grade rating, with an “attractive” dividend and a return on free cash flow.
When asked about the tone of business given widespread expectations that enterprise IT spending will recover, Kavanaugh said that “we are generally encouraged by the trends we see from a macroeconomic perspective,” although he noted that ” trends are not homogeneous all over the world ”. He said there is a link between pandemic curves in different markets and customer buying behavior. “We are cautiously optimistic,” he said.
Write to Eric J. Savitz at [email protected]