Outlook Up By Five Cents

By Reuters  |  Print this article Print

Technology giant IBM's second quarter earnings report disappointed analysis as new tech services contracts declined, even as rival Accenture saw strength in that business.

Net profit slightly exceeded expectations and rose to $3.4 billion, or $2.61 a share, from $3.1 billion, or $2.32 a share, a year earlier. Wall Street had forecast $2.58 a share.

Despite the solid showing in its bottom line, the company's shares fell 3 percent after-hours to $125.60 after closing at $129.79 on the New York Stock Exchange.

The company's higher outlook for full-year earnings -- of "at least $11.25" per share, up from "at least $11.20" previously -- helped little.

IBM shares have fallen about 2 percent over the past quarter as investors focused on technology companies such as Apple Inc (NASDAQ:AAPL) and VMware Inc (NYSE:VMW) which are enjoying double-digit percentage revenue growth.

Analysts said the decline in services signings was especially disappointing given that its main rival Accenture Ltd (NYSE:ACN) recently posted solid bookings.

But few were recommending selling IBM shares, given the company's solid earnings growth. This was its 30th consecutive quarter of year-on-year improvement in earnings per share, and the company has said it plans to double its profit by 2015.

One of the strongest areas of revenue growth in the quarter was emerging markets, which showed a 14 percent gain year-on-year.

Edward Jones analyst Andy Miedler said he was keeping his "buy" recommendation on the shares, saying they were attractively valued at around 11 times earnings forecasts and investors could depend on management to delivering earnings growth.

"Investors definitely wanted to see more in terms of bookings and revenue growth, but we expect them to continue to deliver and move profitability higher," he said.

IBM, which bought PwC Consulting from PricewaterhouseCoopers in 2002 and sold its personal computer business to Lenovo Group in 2005, has spent the past decade shifting away from commoditized hardware products, focusing instead of more profitable software and services.

Its quarterly gross profit margin also inched up to 45.6 percent from 45.5 percent, helped by higher profitability in its software and services business.

Shares of IBM slid to $124.51 after hours from a regular-session close of $129.79. Analysts said disappointment over IBM's results contributed to the 5.8 percent fall in shares of Texas Instruments Inc, which also reported weaker-than-expected revenue on Monday. (Editing by Edwin Chan and Richard Chang)