Daily Management Review

IBM Tops First-Quarter Earnings Expectations, Showing That Demand Is Still Strong


IBM Tops First-Quarter Earnings Expectations, Showing That Demand Is Still Strong
Shares of IBM Corp rose 3.5% after the bell on Wednesday as the company's first-quarter profit beat Wall Street forecasts and it showed that demand for IT services was stronger than anticipated.
In accordance with IBM's expectations, the company's software and consulting businesses saw first-quarter growth of 6% and 8.2%, respectively, at constant currency. Big Blue reaffirmed its $10.5 billion expectation for free cash flow for the entire year.
"Investors blew a sigh of relief that IBM's quarterly update was better than feared," said Jesse Cohen, senior analyst at Investing.com.
After a post-pandemic increase in demand for services like consulting, the IT sector is now experiencing a downturn as consumers are being compelled to rein in their spending due to high inflation and interest rates. The mid-to-high teens growth rate that IBM's consulting and software businesses experienced last year has also slowed down.
Arvind Krishna, the CEO of IBM, said that clients are preferring digital transformation initiatives that emphasize "cost takeout, productivity, and quick returns," echoing remarks made by executives of Accenture last month.
As a result, IBM revised down its high single-digit percentage growth prediction for consulting revenue growth for the whole year to 6%-8%.
After predicting in January that revenue would increase at the lower half of its mid-single-digit target, it now projects annual revenue growth of between 3% and 5% at constant currency. Refinitiv data show that analysts estimate a 3.6% gain on average.
However, analysts think IBM is better able to withstand decreases in corporate IT investment.
With fewer than 1% of its US income coming from regional banks, according to IBM's Chief Financial Officer James Kavanaugh, the corporation is also less exposed to and largely protected from the country's banking problem.
Compared to analysts' expectations of $14.35 billion, total sales in the first quarter increased 4.4% at constant currency to $14.25 billion.
It announced earnings of $1.36 per share after items, exceeding projections of $1.26.