International Business Machines (NYSE: IBM) reported a 4% increase in earnings for the second quarter of 2019 driven by an increasing mix of high-value offerings for clients with gross profit margin expansion and free cash flow growth. The results exceeded analysts’ expectations.
Net income increased by 4% to $2.5 billion or $2.81 per share. Adjusted earnings rose by 3% to $3.17 per share.
Revenues declined by 4% year-over-year to $19.2 billion. Cloud revenue growth accelerated in the quarter by 3.2% as the company aided its clients transition their business models to hybrid environments.
For full-year 2019, IBM remains on track to achieve 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. The company continues to expect Red Hat, including related activity, to be accretive to free cash flow in the first year, and accretive to adjusted earnings per share by the end of the second year after closing.
For the second quarter, revenue from Cloud & Cognitive Software increased by 3.2% helped by broad-based growth across hybrid cloud and data portfolio as well as cognitive applications led by security and growth across many industry vertical solutions.
Global Business Services revenue rose by 0.5% aided by growth across all business lines driven by digital strategy, next gen enterprise apps and hybrid cloud. Global Technology Services revenue declined by 6.7% as it reflects actions to shift away from low-value services content. Systems revenue dropped by 19.5% as IBM Z and Storage performance reflects product cycle dynamics and challenging year-over-year comparison. Revenues from Global Financing dropped by 11%.
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On August 2, the company said it will discuss how the acquisition of Red Hat will accelerate IBM’s revenue growth, contribute to its high-value model and enhance its free cash flow generation going forward.
IBM ended the second quarter with $46.4 billion of cash on hand, of which about $34 billion was used in July to close the acquisition of Red Hat. Debt totaled $73 billion, including Global Financing debt of $25 billion. IBM returned $1.8 billion to shareholders through $1.4 billion in dividends and $0.3 billion in gross share repurchases. The company suspended its share repurchase program on July 9.
Shares of IBM ended Wednesday’s regular session down 0.32% at $143.07 on the NYSE. Following the earnings release, the stock rose over 1% in the after-market session.