10-QPeriod: Q2 FY2019

INTERNATIONAL BUSINESS MACHINES CORP Quarterly Report for Q2 Ended Jun 30, 2019

Filed July 30, 2019For Securities:IBM

Summary

IBM's Q2 2019 earnings report reveals a mixed financial performance. Total revenue declined by 4.2% year-over-year to $19.2 billion, with a 2% decrease when adjusted for currency. However, key segments like Cloud & Cognitive Software and Global Business Services showed growth, signaling a positive shift towards higher-value offerings. The company also saw improvements in gross profit margin, reaching 47.0% for the quarter. Net income from continuing operations increased by 3.9% to $2.5 billion, with diluted earnings per share at $2.81. A significant event during the quarter was the acquisition of Red Hat, which closed on July 9, 2019, for approximately $34 billion. This strategic move is expected to bolster IBM's hybrid cloud capabilities. The company also announced the suspension of its share repurchase program following the Red Hat acquisition to focus on debt reduction.

Financial Highlights

51 data points
Beta

Revenue

$19.16B

47.0% Gross Margin

Net Income

$2.50B

13.0% Net Margin

EPS (Diluted)

$2.81

Total Assets

$154.65B

Cash & Equivalents

$45.40B

Free Cash Flow

$2.36B

Financial Statements
Beta
Revenue$19.16B
Cost of Revenue$10.15B
Gross Profit$9.01B
R&D Expenses$1.41B
SG&A Expenses$5.46B
Operating Income$4.09B
Interest Expense$348.00M
Net Income$2.50B
EPS (Basic)$2.82
EPS (Diluted)$2.81
Shares Outstanding (Basic)886.27M
Shares Outstanding (Diluted)890.83M

Key Highlights

  • 1Total revenue for Q2 2019 decreased 4.2% to $19.2 billion, impacted by currency fluctuations.
  • 2Cloud & Cognitive Software segment revenue grew 3.2% year-over-year, indicating strength in this strategic area.
  • 3Net income from continuing operations increased by 3.9% to $2.5 billion, with diluted EPS of $2.81.
  • 4Gross profit margin improved to 47.0% from 46.0% in the prior year, driven by software growth and services productivity.
  • 5IBM completed the acquisition of Red Hat for approximately $34 billion on July 9, 2019, a major step in its hybrid cloud strategy.
  • 6The company suspended its share repurchase program following the Red Hat acquisition to focus on debt reduction.
  • 7Cash flow from operations increased to $7.7 billion for the first six months of 2019, up from $6.9 billion in the prior year.

Frequently Asked Questions

IBM's total revenue decreased by 4.2% year-over-year to $19.2 billion in the second quarter of 2019. When adjusted for currency, the revenue decreased by 1.6%.

The acquisition of Red Hat closed on July 9, 2019, for approximately $34 billion, funded by cash and debt issuances. This strategic move is expected to significantly enhance IBM's hybrid cloud capabilities. However, due to the timing of the closing, full-year expectations were not updated in this Q2 report to include Red Hat's financial impact.

The Cloud & Cognitive Software segment showed positive momentum, with revenue increasing by 3.2% year-over-year to $5.6 billion. This growth was broad-based across its Cognitive Applications, Cloud & Data Platforms, and Transaction Processing Platforms businesses, indicating strong client adoption and strategic alignment.

IBM reiterated its expectation for GAAP earnings per share from continuing operations of at least $12.45 for 2019. Operating (non-GAAP) earnings per share was expected to be at least $13.90. The company also anticipated free cash flow of approximately $12 billion for 2019. These projections did not include the financial impact of the Red Hat acquisition, with updated guidance expected later.