IBM Shares Rise After Hours as Software Drives Earnings Beat

IBM (NYSE: IBM) shares rose about 5% in after-hours trading after the technology group beat analysts’ third-quarter profit and revenue forecasts and raised its free cash flow outlook. IBM sells enterprise software, including through its open-source hybrid cloud subsidiary Red Hat, alongside consulting and mainframe hardware.

The shares closed the regular session at $251.46, up 3.9%, before the results were released after the US close.

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IBM reported revenue of $17.1bn, up 5% from $16.3bn a year earlier, or 6% in constant currency, which strips out exchange-rate effects. Operating earnings per share, profit per share excluding certain accounting items, were $2.95 against $2.65 a year ago.

Analysts polled by Yahoo Finance had expected $2.87 and revenue of $16.84bn. IBM beat on earnings by 8 cents, or 2.8%, and on revenue by $0.26bn, or 1.6%. The revenue figure also topped the highest single estimate in the Yahoo Finance range, $17.05bn.

Software was the engine. Revenue there rose 8% to $7.8bn, with Red Hat and hybrid cloud up 11% and the Data business up 19%. Infrastructure grew 4% to $3.7bn, even though IBM Z mainframe sales fell 20%. Consulting was flat at $5.3bn.

Management left its full-year constant-currency revenue growth forecast at 4% to 5%. It now expects free cash flow, the cash left after running costs and investment, to rise by more than $1bn year on year, a raised target.

Free cash flow was $3.0bn in the quarter, up $0.7bn, and $7.8bn for the year to date. Operating pre-tax margin was 19.3%, up 70 basis points.

“Demand across our portfolio combined with strong operational execution led to accelerated growth and solid operating pre-tax margin expansion in the quarter,” said James Kavanaugh, IBM chief financial officer.