IBM posts biggest increase in annual sales in more than a decade, announces layoffs

By Jeremy C. Owens and Levi Summary

After posting lowest sales total since 1987 last year, IBM manages to increase sales by more than 6% and expects more growth in 2023

International Business Machines Corp. grew revenue more than 6% in 2022, Big Blue’s biggest sales increase in more than a decade, but its stock fell in extended trading on Wednesday.

Chief executive Arvind Krishna said on IBM’s (IBM) earnings call that the company saw “revenue growth across all segments and geographies”, and attributed that to the strength of the company’s hybrid cloud and artificial intelligence strategy.

The company’s software sales increased 8% and consulting revenue increased 9% at constant currencies, chief financial officer James Kavanaugh said on the call. These two companies represent 70% of the overall turnover, he said.

The company is also laying off 1% to 1.5% of its workforce, a spokesperson confirmed on Wednesday. That’s about 3,900 employees, Kavanaugh said in an interview with Bloomberg, which was first to report the job cuts. The layoffs were not mentioned in the company’s earnings call, but the company’s spokesperson said the cuts are mostly related to a fallout in 2021 and a care unit divestiture healthcare, which will result in a charge of $300 million in the first quarter.

IBM reported fourth-quarter earnings of $2.71 billion, or $3.13 per share, on revenue of $16.7 billion, in line with about $16.7 billion at the same quarter a year ago. After adjusting for acquisition- and exit-related costs and other charges, IBM reported earnings of $3.60 per share, up from adjusted earnings of $3.35 per share in the holiday quarter. Last year.

Analysts on average had expected adjusted earnings of $3.59 per share on revenue of $16.15 billion, according to FactSet. The shares fell about 2% in after-hours trading after the earnings release, after closing 0.5% lower at $140.76.

For the full year, IBM posted adjusted earnings of $7.93 per share on sales of $60.53 billion, an increase from revenue of $57.35 billion a year ago. year, the largest percentage increase in annual sales since 2011. Revenue growth has been hard to come by for IBM. — Sales have risen only once year-over-year since a 7.1% increase in 2011, or a 0.6% gain in 2018, according to FactSet records.

IBM was able to boost its revenue largely because it recorded its lowest sales total since 1987 last year, after building its managed infrastructure services business known as Kyndryl Holdings Inc. (KD ) at the end of 2021. After surpassing $60 billion in sales in 2022, IBM executives forecast mid-single-digit revenue growth in 2023 on Wednesday. in the mid-single digit,” Kavanaugh said on the call, during which he noted that some of the company’s challenges include a strong dollar and its exit from operations in Russia because of the war in Ukraine.

Analysts on average expect revenue growth to continue and eventually accelerate. The average analyst estimate for 2023 calls for annual sales of $60.8 billion, according to FactSet, which would represent less than 1% growth. In 2024, however, analysts forecast average revenue of $63.38 billion.

“All three segments of IBM’s business face additional headwinds in 2023,” Stifel analysts wrote in an IBM earnings preview this week, explaining that software and consulting firms Red Hat will likely struggle to grow due to the current slowdown in business spending, while the infrastructure business is about to complete a mainframe refresh that led to healthier growth last year. Still, analysts maintained a “buy” rating on the stock and raised their price target to $158 from $140. Jefferies analysts wrote in a note Wednesday after IBM’s earnings release that “the fourth quarter was strong enough with low expectations” and that they “like the strength of software.”

IBM stock has outperformed the S&P 500 index for the past 12 months, as well as the Dow Jones Industrial Average, which counts the company as one of its 30 constituents. IBM stock is up 3.3% over the past year, with the S&P 500 down 7.8% and the Dow Jones down 1.6%.

-Jeremy C. Owens

 

(END) Dow Jones Newswire

01/25/23 1905 ET

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