International Business Machines Corp. boosted sales by more than 6% in 2022, the biggest sales increase for Big Blue in more than a decade, but its shares fell in extended trading on Wednesday.
Chief Executive Arvind Krishna at IBM’s IBM, -0.52% earnings call said the company saw “revenue growth across all segments and regions,” citing the strength of the company’s hybrid cloud and artificial intelligence strategy return.
The company’s software revenue increased 8% and consulting revenue increased 9% on a constant currency basis, Chief Financial Officer James Kavanaugh said on the earnings call. Those two companies account for 70% of total sales, he said.
The company is also laying off 1% to 1.5% of its workforce, a spokesman confirmed on Wednesday. That’s about 3,900 employees, Kavanaugh said in an interview with Bloomberg, which was the first to report the job cuts. The layoffs weren’t mentioned in the company’s earnings call, but the company spokesman said the cuts are primarily related to a spinoff and sale of the Watson Health unit, which will result in a $300 million charge in the first quarter.
IBM reported fourth-quarter earnings of $2.71 billion, or $3.13 per share, on revenue of $16.7 billion, up from $16.7 billion in the same quarter last year is equivalent to. Adjusted for acquisition and disposal costs and other charges, IBM reported earnings of $3.60 per share, up from adjusted earnings of $3.35 per share in last year’s holiday quarter.
According to FactSet, analysts on average were expecting adjusted earnings per share of $3.59 on sales of $16.15 billion. Shares fell about 2% in after-hours trading following the earnings release after closing down 0.5% at $140.76.
For the full year, IBM reported adjusted earnings per share of $7.93 on revenue of $60.53 billion, up from revenue of $57.35 billion a year ago, the largest percentage increase of annual revenue since 2011. Revenue growth has been tough for IBM — Revenue has risen just once year over year since it rose 7.1% in 2011, up from 0.6% in 2018, according to FactSet records.
IBM’s revenue growth was largely due to its smallest total revenue since 1987 last year after it spun off its managed infrastructure services business, known as Kyndryl Holdings Inc. KD, up +0.47% in late 2021. After over $60 billion in revenue in 2022, IBM executives on Wednesday forecast revenue growth in the mid-single digits in 2023. The company’s challenges include a strong dollar and its withdrawal from Russia business due to the war in Ukraine.
Analysts, on average, expect revenue growth to continue and eventually accelerate. The median analyst estimate for 2023 is for annual sales of $60.8 billion, according to FactSet, which would represent growth of less than 1%. However, for 2024, analysts are forecasting average sales of $63.38 billion.
“All three segments of IBM’s business face increasing headwinds in 2023,” Stifel analysts wrote in a preview of IBM’s earnings this week, explaining that Red Hat’s software and consulting firms are struggling due to the current slowdown in the economy Business spending likely to struggle for growth The infrastructure business is poised for a mainframe refresh that fueled healthier growth last year. Nonetheless, analysts kept a “buy” rating on the stock and raised their price target to $158 from $140. Jefferies analysts wrote in a note Wednesday after IBM’s earnings release that “Q4 was solid enough with low expectations” and that they “like the strength of the software.”
IBM stock has outperformed the S&P 500 index SPX by -0.02% over the past 12 months as well as the Dow Jones Industrial Average DJIA by +0.03%, which counts the company as one of its 30 constituents. IBM stock is up 3.3% over the past year, while the S&P 500 is down 7.8% and the Dow is down 1.6%.