IBM Operating Margins Hit Highest Level In Over A DecadeVW Staff
International Business Machines Corp. (NYSE: IBM) reported its fourth quarter earnings after the bell on Tuesday.The company saw a fourth-quarter profit of $5.8 billion ($5.13 a share), on $29.3 billion in revenues. This compares to the previous time period a year ago with IBM earning $5.5 billion ($4.62 a share), on $29.48 billion in sales, representing a 6 percent increase.
When excluding one-time times, the company would have earned $6.1 billion ($5.39 a share). This compared to $5.6 billion ($4.71 per share) in 2011’s fourth quarter or a 10 percent increase.
Analysts had estimated that IBM would earn $5.25 a share on $29.12 billion in sales. For the 2013 fiscal year, the company expects to earn at least $16.70 a share excluding one-time items.
Total fourth quarter revenues for 2012 was $29.3 billion, a decrease of 1 percent (flat adjusting for currency) when compared to the fourth quarter of 2011. Without the impact of the divested Retail Store Solutions (RSS) business, revenue increased 1 percent, adjusting for currency.
International Business Machines Corp. (NYSE:IBM) delivered 4Q12 gross margin of 52.3% (vs. 48.1% in 3Q12), above 51.4% estimates. Operating margin of 27.1% was well above estimates of 26.2% and significantly higher than the 19.1% print in 3Q12. This appears to be the highest operating margin for IBM in at least a decade, according to analysts at Topeka Capital. Operating profit of $7.94 billion was above estimates $7.56 billion. IBM generated $9.5 billion in free cash flow during 4Q12.
Global Technology Services (35% of 4Q12 sales) sales rose by 3.6% QoQ and Global Business Services (16%) increased by 3.9%, beating flat estimate for both businesses. System & Technology (20%) showed the strongest QoQ sales growth with a 48% uptick on the mainframe refresh, while Software (27%) grew by 37% QoQ and nearly inline with estimates of 38%.
On the conference call, International Business Machines Corp. (NYSE:IBM) management noted that growth in the software business was helped by Business Analytics and Storage Management offerings. WebSphere was up 11% and IBM’s cloud business was also highlighted as a driver of growth. Management also commented that, after the somewhat weaker software performance seen in 3Q’12, IBM had performance in 4Q’12 from the software business that was more consistent with the company’s target business model going forward.
Ginni Rometty, IBM chairman, president and chief executive officer said in the company’s press release, “We achieved record profit, earnings per share and free cash flow in 2012. Our performance in the fourth quarter and for the full year was driven by our strategic growth initiatives — growth markets, analytics, cloud computing, Smarter Planet solutions — which support our continued shift to higher-value businesses,” said .
“Looking ahead, we continue to invest to deliver innovations for the enterprise in key areas such as big data, mobile solutions, social business and security, while expanding into new markets and reaching new clients. We are well on track toward our long-term roadmap for operating EPS of at least $20 in 2015.”
As for 2013 expectations, IBM believes it will deliver full-year 2013 GAAP EPS of at least $15.53; and operating (or non-GAAP) EPS of at least $16.70. The 2013 operating (non-GAAP) earnings does exclude $1.17 per share of charges for the amortization of purchased intangible assets, other acquisition-related charges, and retirement-related items as driven by the changes to plan assets and liabilities that are primarily related to market performance.
Looking at the company’s geographic regions, the Americas’ fourth-quarter revenues were $12.5 billion; this comes in flat (up 1 percent, adjusting for currency) as compared to the 2011 period. Europe/Middle East/Africa revenues were $9.1 billion, a 5 percent decline (down 3 percent, adjusting for currency).
One bright spot was Asia-Pacific revenues which rose 4 percent (up 5 percent, adjusting for currency) to $7.0 billion. OEM revenues were $679 million, a 5 percent decline when compared to the previous year’s numbers.
For the company’s growth markets, revenues rose 7 percent. In the BRIC countries (Brazil, Russia, India and China) revenues jumped increased 11 percent (up 14 percent, adjusting for currency).
IBM noted that total revenue performance in Europe was down 3% in CC. Business in Germany and the UK was tough, although it was noted that Italy seemed to be getting better. APAC increased 5% driven by Japan returning to growth, and growth markets were up 7%.
International Business Machines Corp. (NYSE:IBM) shares were up 3% in after-hours trading.