IBM shares plunge on downbeat outlook

Earnings of technology conglomerate IBM (IBM) declined in the first quarter, despite strong cloud revenue lifting the top line. However, earnings adjusted for special items increased 4%. Shares of the company lost nearly 5% in the extended trading hours after its full-year outlook fell short of expectations.

Net income dropped 2.2% to $1.81 per share during the quarter. Excluding one-time items, operating earnings increased to $2.45 per share. First quarter revenues grew 5% year-on-year to $19.1 billion, continuing the rebound that began in the previous quarter.

Driving the overall top-line growth, revenues of the Strategic Imperatives segment rose 12% to $37.7 billion, with cloud revenue jumping 22% annually.

Segment wise, Cognitive Solutions revenue moved up 6% and Global Business Services advanced 4%. Revenue of Technology Services & Cloud Platforms rose 5%, while that of Systems rose 8%. Meanwhile, Global Financing revenue was flat during the quarter.

Revenues rose for the second consecutive quarter, continuing the recovery that began in Q4

“The multi-year shift in our investment strategy is paying off as IBM leads in the emerging, high-value segments of the enterprise IT industry. Revenue, operating net income and free cash flow increased in the quarter, with broad-based improvement in our gross margin trajectory, as we continue to deliver shareholder value,” said IBM CFO James Kavanaugh.

The diversified tech giant reaffirmed its outlook for full-year adjusted operating income at $13.80 per share and adjusted net earnings at $11.58 per share. The outlook falls short of the consensus estimate. The company continues to expect free cash flow of about $12 billion in fiscal 2018.

Among IBM’s rivals in the software business, Oracle (ORCL) reported adjusted earnings of $0.83 per share in the third quarter, up 16% compared to the prior-year quarter. Microsoft (MSFT) is scheduled to report its third-quarter earnings on April 26.