International Business Machines (NYSE:IBM) reported second-quarter earnings Wednesday that topped analysts’ estimates as the company expanded its gross margin. Revenue missed consensus estimates.
Earnings came in at $2.18 per share, adjusted, versus $2.01 per share expected.
Revenue proved to be $15.48 billion, versus $15.58 billion expected.
Net income for the quarter rose 13% to $1.6 billion from $1.4 billion, or $1.72 per share, a year earlier. IBM’s adjusted gross margin of 55.9% was higher than the StreetAccount estimate of 54.7%. Revenue was virtually flat from a year earlier.
IBM Chief Financial Officer James Kavanaugh, in a statement, attributed the company’s expanding gross margin to a more profitable mix of products — software was the company’s fastest-growing division — as well as “productivity initiatives.” IBM announced 3,900 job cuts in January as part of a broader downsizing across the tech sector.
“The productivity benefits free up spend for reinvestment and contribute to margin expansion,” Kavanaugh said on a call with analysts.
IBM reiterated Wednesday that it expects between 3% and 5% revenue growth through the end of the year in constant currency. The company forecasts about $10.5 billion in free cash flow in 2023.
IBM’s largest division, its software segment, reported $6.6 billion in sales, which was up over 7% from a year ago. Software includes products such as its Red Hat Enterprise Linux operating system and security software.
IBM shares surged $4.09, or 3%, to $139.56.
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