IBM (NYSE: IBM) recently stated third-quarter results.
- GAAP EPS from continuing operations of $1.870
- Operating (non-GAAP) EPS of $2.680
- Net cash from operating activities of $15.40B and free cash flow of $12.30B, over the last 12 months
- Debt reduced by $6.70B since the end of 2nd-quarter
- Revenue of $18.00B, down 3.90 percent (down 0.60 percent adjusting for divested businesses and currency)
- Revenue for Red Hat, up 19.00 percent (up 20.00 percent adjusting for currency), normalized for historical comparability
- Revenue growth in Cloud & Cognitive Software and Global Business Services segments
— Cloud & Cognitive Software up 6.0 percent (up 8.0 percent adjusting for currency)
— Global Business Services up 1.0 percent (up 2.0 percent adjusting for currency)
- Cloud revenue of $5.00B in the 3rd-quarter, up 11.00 percent (up 14.00 percent adjusting for divested businesses and currency)
— Cloud revenue of $20.00B over the last 12 months
“We continued our focus on the strength of our balance sheet in the 3rd-quarter,” said James Kavanaugh, IBM senior vice president and chief financial officer. “We generated $12.30B in free cash flow over the last 12 months and with our disciplined fiscal administration we reduced debt by nearly $7.00B in the quarter, while maintaining a strong cash balance.”
Cash Flow and Balance Sheet
In the 3rd-quarter, the company generated net cash from operating activities of $3.60B, or $2.50B apart from Global Financing receivables. IBM’s free cash flow was $1.80B. IBM returned $1.60B to shareholders through $1.40B in dividends and $0.10B in gross share repurchases. The company suspended its share repurchase program on July 9.
IBM finished the 3rd-quarter with $11.00B of cash on hand. Debt, counting Global Financing debt of $23.10B, totalled $66.30B – down $6.70B since the end of the 2nd-quarter.
Segment Results for 3rd-Quarter
- Cloud & Cognitive Software (includes cloud and data platforms which includes Red Hat; cognitive applications; and transaction processing platforms) — revenues of $5.30B, up 6.40 percent (up 7.80 percent adjusting for currency), led by security, IoT, data and AI platforms and hybrid cloud; cloud and data platforms, up 17.00 percent (up 19.00 percent adjusting for currency); cognitive applications, up 4.0 percent (up 6.0 percent adjusting for currency); transaction processing platforms, down 5.0 percent (down 4.0 percent adjusting for currency).
- Global Business Services (includes consulting, application administration and global process services) — revenues of $4.10B, up 1.0 percent (up 2.20 percent adjusting for currency), led by growth in consulting, up 4.0 percent (up 5.0 percent adjusting for currency); gross profit margin raised 110 basis points.
- Global Technology Services (includes infrastructure and cloud services and technology support services) — revenues of $6.70B, down 5.60 percent (down 4.10 percent adjusting for currency).
- Systems (includes systems hardware and operating systems software) — revenues of $1.50B, down 14.70 percent (down 13.80 percent adjusting for currency), reflecting the end of the IBM z14 product cycle and shipping of the new IBM z15 in the last week of September; gross profit margin expansion in Power and Storage.
- Global Financing (includes financing and used equipment sales) — revenues of $343.00M, down 11.70 percent (down 10.70 percent adjusting for currency); revenue reflects the wind-down of OEM commercial financing; gross profit margin expansion.
Full-Year 2k19 Expectations
On August 2, 2k19, the company updated full-year expectations to reflect the impact of the Red Hat acquisition and related activities. IBM anticipates GAAP diluted earnings per share for the full year to be at least $10.580. The company continues to expect operating (non-GAAP) diluted earnings per share of at least $12.80. Operating (non-GAAP) diluted earnings per share exclude $2.220 per share of charges for: amortization of purchased intangible assets and other acquisition-related charges, counting pre-closing charges, such as financing costs, associated with the Red Hat acquisition; retirement-related charges; and tax reform enactment impacts.
IBM continues to expect free cash flow of about $12.00B, with a realization rate over 100 percent of GAAP Net Income.
Year-To-Date 2k19 Results
Year-to-date results reflect the impact of items related to the Red Hat acquisition closed in July 2k19. Merged diluted earnings per share was $6.450 contrast to $7.370, down 12.00 percent year to year. Merged net income was $5.80B, down 15.00 percent year to year. Revenues for the nine-month duration finished September 30, 2k19 totalled $55.40B, a decline of 4 percent year to year (down 0.70 percent adjusting for divested businesses and currency) contrast with $57.80B for the 1st-nine months of 2k18.
Operating (non-GAAP) diluted earnings per share from continuing operations was $8.100 contrast with $8.960 per diluted share for the 2k18 duration, a decline of 10.00 percent. Operating (non-GAAP) net income for the nine months finished September 30, 2k19 was $7.20B contrast with $8.20B in the prior-year duration, a decline of 12.00 percent.