IBM misses estimates

IBM Corp posted a rare quarterly earnings miss as the technology services company struggled with the depreciation of the Japanese yen and a failure to close a number of major deals, especially in Europe and the United States. Much like Oracle Corp last month, IBM blamed a poor performance by its sales force for some of the shortfall. But analysts said it was not just one quarter - the company's sales have been weakening consistently, dragging down results with or without the changes in the yen.
"Their revenue has been declining for basically many quarters in a row. You can't have revenue declines and consistently expect your earnings to beat. That is catching up with them," said ISI Group analyst Brian Marshall. IBM is known for keeping a tight rein on costs and focusing on high-margin software, allowing it to generally exceed Wall Street expectations, even in a tough economic environment.
But Chief Financial Officer Mark Loughridge blamed poor sales execution for the failed closing of a number of deals, as well as the Easter holiday at the end of March. Around $400 million worth of deals expected to close in the first quarter had been moved into the second, IBM said. On a conference call with analysts, Loughridge also said it was unclear whether the sequester - a series of automatic US federal budget cuts - had an effect.
"It's hard to measure. I can tell you that our US federal business was down 13 percent, which was certainly a drag on the US performance," he said. IBM's first quarter non-GAAP income rose 3 percent to $3.4 billion, or $3 per share, but missed analyst estimates of $3.05 a share, according to Thomson Reuters I/B/E/S. It was the first time it at least nine quarters that IBM missed estimates.
Quarterly revenue dropped 5 percent to $23.4 billion, compared with estimates of $24.6 billion. Revenues fell 3 percent adjusted for currency. For the current quarter, IBM is anticipating a restructuring charge of almost $1 billion and EPS in a similar range to the first quarter. Analysts expected earnings of $3.95 per share in the second quarter. However, Loughridge expected EPS to improve in the second half of the year, allowing IBM to reach its full year target of at least $16.70 per share.
IBM shares lost 3.4 percent from a closing price of $207.15 in extended trading following results. Forrester Research's Andrew Bartels said the results showed IBM was somewhat impacted by the sequester, but that Microsoft's results showed tech spending was not generally down.