66% Drop in Earnings
Shares in IBM are trading heavily lower pre-market on Friday following a mixed set of Q4 earnings, released yesterday. While headline earnings were better than expected at $2.07 versus $1.81 forecast, EPS was still down 66% on the year. This is the company’s sharpest fall in earnings in three years.
The earnings slump was due in part to the $2.04 billion pre-tax charges for structural actions over the quarter. However, this charge was lower than initially forecast. IBM had flagged £2.3 billion as the potential figure back in October.
Additionally, revenues continued to slide over the quarter, disappointing investors. Prior to the sell-off in response to Q4 earnings, IBM shares had been on a firm rally. The company’s stock price rallied 25% off the Q3 lows trading from the 106 level up to around 132 before reversing to the current pre-market price of mid 122s.
Fourth-quarter revenues came in at $20.37 billion versus the $20.67 billion forecasted, marking a 6% contraction against the same period a year prior. This marks the fourth straight quarter of lower-than-expected revenues for IBM, the company’s worst period for five years.
Commenting on the disappointing results, IBM chief financial officer Jim Kavanaugh said:
“The challenging environment we have seen since March continued with the shift in clients buying behaviors and priorities. Giving the level of macroeconomic uncertainty, more clients tended to move toward shorter duration engagements impacting our software revenue.”
Revenues Lower Across the Board
Looking at the breakdown of the results, IBM’s Cloud and Cognitive Software segment which includes Red Hat, delivered $6.84 billion in revenue. This marked a decline of 5% from the same period a year prior.
The firm’s Global Technology Services unit also saw a slide in revenues with results of $6.57 billion, a 6% decline from the prior year. Meanwhile, Global Business Services saw a 3% slump to $4.17 billion, though this was slightly above the $4.08 billion forecasted.
Looking ahead, IBM declined to offer earnings guidance, citing uncertainty around the ongoing COVID pandemic. However, IBM CEO Arvind Krishna said that the company is forecasting growth for 2021 as the global economy rebounds in the second half of the year.
IBM Reverses Back Below Trend Line
IBM shares had been trading above the bearish trend line from 2020 highs prior to the earnings-driven sell-off.
Pre-market, shares are now trading back below the 128.80 level and will open atop the 122.39 level support. While this level holds, further upside could still be seen. However, a break below there will open the way for a deeper move towards the 115.51 level next.