IBM beats revenue and earnings estimates as margins lag

IBM reported revenue of $17.1 billion, up 5% year over year, or 6% at constant currency.[1] CNBC reported that revenue exceeded the $16.82 billion analyst consensus, while adjusted earnings per share of $2.95 topped the $2.86 expected.[2] Net income rose to $2.19 billion from $1.74 billion a year earlier.[2] The results were not uniformly ahead of expectations: IBM’s adjusted gross margin was 58.5%, below StreetAccount’s 59.1% consensus.[2] That margin miss is an important counterpoint to the revenue and earnings beats.

IBM’s software revenue increased 8% and exceeded the $7.66 billion consensus among analysts polled by StreetAccount.[1][2] Consulting revenue was $5.34 billion and flat.[2] Within consulting, the unit’s gross margin was 27.4%, down from 28.9% in the second quarter.[2] For readers assessing the mix of IBM’s growth, the reported figures distinguish software’s year-over-year increase from consulting’s flat revenue and lower sequential gross margin.[1][2] The evidence does not specify the causes of those differences.

IBM maintained its full-year constant-currency revenue growth outlook at 4% to 5%.[1] The company reported free cash flow of $3.0 billion, up $0.7 billion year over year, and expected free cash flow to increase by more than $1 billion year over year.[1] IBM’s board also approved a quarterly cash dividend of $1.69 per common share for stockholders of record on November 10.[1] These figures give investors several separate measures to track: the unchanged revenue outlook, cash generation, and the declared dividend.