International Business Machines Inc. shares rallied in the extended session Monday as the tech giant not only topped Wall Street estimates and broke a streak of declining revenue levels but forecast a return to pre-COVID-19 growth levels.
shares, which had initially surged nearly 5%, were last up 3.3% after hours following the end of the conference call with analysts. The stock declined 0.4% in the regular session to close at $133.12.
On the call with analysts, IBM Chief Financial Officer James Kavanaugh said “going forward we are very confident in getting back in second quarter to our pre-pandemic levels of growth.
“By the way, our backlog run-out in the next 90 days already shows that,” Kavanaugh added.
On the call, Kavanaugh said, “the average of analyst revenue estimates for the second quarter look reasonable.” Analysts, on average, expect revenue of $18.27 billion for the second quarter, or a gain of 0.8%, according to FactSet.
IBM said it expects ” to grow revenue for the full-year 2021 based on mid-April 2021 foreign exchange rates.” Analysts expect full-year revenue of $74.07 billion, or a gain of 0.6% from 2020.
“Last quarter, I also talked about how the events of the last year have increased the needs for our clients to accelerate their digital transformations,” said Chairman and Chief Executive Arvind Krishna on the call. “This is continuing and the overall spend environment is improving, while there are some clear differences by geography and industry.”
The company reported first-quarter net income of $955 million, or $1.06 a share, compared with $1.18 billion, or $1.31 a share, in the year-ago period. Adjusted earnings, which exclude stock-based compensation expenses and other items, were $1.77 a share, compared with $1.84 a share in the year-ago period.
Revenue rose to $17.73 billion from $17.57 billion in the year-ago quarter, snapping a four-quarter streak of sales declines.
Analysts had estimated $1.69 a share and a decline in revenue to $17.32 billion for the first quarter.
Global technology services, or GTS, posted $6.37 billion in revenue compared with $6.47 billion in the year-ago quarter and the $6.32 billion Street consensus.
The company reported cloud- and cognitive-software revenue — which includes its Red Hat unit — of $5.44 billion compared with $5.24 billion a year ago, while analysts had been expecting $5.48 billion.
“It was good to see IBM get back to growth after a year, and even better to see the company beat the Street on revenue and earnings,” said Patrick Moorhead, principal analyst at Moor Insights & Strategy, in emailed comments. “What you would want to be up, cloud and cognitive, were up and I was thrilled to see systems and global business services growth, as it wasn’t expected.”
Total cloud revenue, which draws from various business units, grew 21% to $6.5 billion from a year ago, IBM said.
Global business services revenue was $4.23 billion, compared with $4.14 billion a year ago, and Street forecasts of $4.03 billion. Systems revenue was $1.43 billion, compared with $1.37 billion a year ago and analysts’ expectations of $1.29 billion.
Concerning IBM’s newly named managed infrastructure-service business Kyndryl, IBM’s Kavanaugh expects the spinoff of the business to be complete by the end of the year. The spinoff was announced in October.
“In addition to establishing a name, headquarters location, and expanding the leadership team, we continue to make good progress on executing the necessary financial, legal, and regulatory milestones to enable the transaction,” Kavanaugh said.
Over the past 12 months, IBM shares have advanced 11%. Over the same period, the Dow Jones Industrial Average
— which counts IBM as a component — has gained 41%, the S&P 500 index
has risen 45% and the tech-heavy Nasdaq Composite Index
has soared 61%.