IBM ($92~$98) Posts Stellar Quarter
By K.C. Swanson
TheStreet.com Staff Reporter
01/16/2004 10:52 AM EST
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Updated from Jan. 15
IBM (IBM:NYSE - commentary - research) shares rose again Friday as the market shrugged off some analysts' concerns about earnings quality in Thursday's earnings report. In late morning trading, the stock was up $1.02, or 1.1%, to $95.04 -- a climb of just over 5% since Wednesday's close.
IBM pulled off a major upside earnings surprise before the bell Thursday and reported strong bookings in its massive services arm in the December quarter, while acknowledging that the division's gross margins have fallen because of tough price competition. The technology bellwether also endorsed Wall Street's consensus estimate for 2004 earnings, suggesting it expects to see profit growth of nearly 13%.
At First Albany, analyst Joel Wagonfeld noted that most of the top-line growth was driven by currency benefits, but he said he's increasing his 2004 calendar year estimate to $4.89 to $4.82, pointing to an "incrementally positive" tone and outlook from management. "Strong services signings should boost sentiment and provide evidence that IBM is holding its own," he added. (First Albany hasn't done recent investment banking for IBM.)
Thursday morning, IBM said fourth-quarter earnings rose 166% from a year earlier, thanks mainly to about $1 billion of charges on discontinued operations in the year-ago quarter. On a continuing operations basis, fourth-quarter earnings rose 41% to $1.56 a share on a 9% jump in continuing revenue to $25.9 billion.
The year-ago quarter's continuing operations included a charge totaling 23 cents a share related to its acquisition of PricewaterhouseCoopers. Excluding that, earnings rose 16% year over year. Analysts surveyed by Thomson First Call had been forecasting earnings in the latest quarter of $1.50 a share from continuing operations on sales of $25.02 billion.
The stock surged $4.99, or 5.5%, to $95.30 in premarket trading on Instinet.
IBM surpassed expectations on service signings with $18.7 billion in bookings. Wall Street expectations were more modest, with Goldman Sachs outlining expected signings of a mere $14 billion. "Given the environment, global services had another solid quarter," said Chief Financial Officer John Joyce, though he acknowledged that fourth-quarter gross profit margins slid 1.5 percentage points from last year's levels to 25%.
Joyce chalked up the slide to "continued price and cost pressures on business consulting services given current demand" and acknowledged that IBM had seen a "rescoping of a handful of contracts" in the quarter.
On a more auspicious note, looking forward, Joyce said he would characterize 2004 as the year the IT industry begins to grow again, after a few years marked by market decline or sluggish growth. |
