What to expect from IBM Q2 earnings

International Business Machines (NYSE: IBM) is set to report its earnings results for the second quarter of 2019 on Wednesday after the market closes. The quarterly focus points include hybrid-cloud, cryptocurrency, Red Hat acquisition, and blockchain. However, the expenses on purchase of Red Hat could weigh on the future’s results.

The company continued to prioritize its investments and announced actions to divest certain businesses that aren’t contributing to the integrated value proposition for its clients. And, IBM has been planning in preparation for the acquisition of Red Hat, and the closing happened last week.

For full-year 2019, IBM expects adjusted operating earnings to be at least $13.90 per share and GAAP earnings of $12.45 per share or above. Cash flow is touted to be about $12 billion for the year.

Looking at the skew of earnings for the year, the company assumes to deliver about 22% in the second quarter, in line with the last couple of years. For the second half, the company would expect the growth in EPS to be skewed to the fourth quarter. This assumes closing of the software divestitures in the second quarter, with the gain effectively offset by the foregone profit and the charges for actions to address the structure and stranded costs.

Analysts expect the company’s earnings to decline by 0.30% to $3.07 per share and revenue will decrease by 4.20% to $19.16 billion for the second quarter. In comparison, during the previous year quarter, IBM posted a profit of $3.08 per share on revenue of $20 billion. The company has surprised investors by beating analysts’ expectations in all of the past four quarters.

For the first quarter, IBM reported a 5% decline in earnings due to the IBM Z product cycle dynamics, weaker performance in storage, and its continued investments in innovative technologies despite lower costs and expenses. Revenues declined by 5% year-over-year. Cloud revenue growth accelerated in the quarter as the company aided its clients transition their business models to hybrid environments.

Shares of IBM opened higher on Monday but changed course to the red territory on the NYSE. The stock has fallen over 2% in the past year and over 1% in the past three months.

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