Cloud, services fuel IBM's profit beat, robust outlook; shares jump

(Reuters) – IBM Corp beat analysts’ fourth-quarter earnings estimates and forecast full-year profit above expectations on Tuesday, as the company benefits from its focus on newer businesses such as cloud, software and services, sending its shares up about 7 percent.

FILE PHOTO: The IBM logo is seen at the SIBOS banking and financial conference in Toronto, Ontario, Canada October 19, 2017. REUTERS/Chris Helgren/File Photo

The company has been shifting toward the faster-growing segments to lower dependence on its traditional hardware products and reverse years of revenue declines.

“We had our strongest signings quarter to finish out the year in a long period of time, where we signed roughly $16 billion worth of signings – that’s up 21 percent,” Chief Financial Officer James Kavanaugh told Reuters.

“We had 16 deals greater than a $100 million which talks to value of our hybrid cloud, multi-cloud value proposition,” he said.

IBM has been structuring its cloud strategy around helping companies stitch together their multiple cloud platforms, according to analysts, aiming not to compete head-to-head with “hyperscale” cloud providers such as Amazon Web Services Microsoft Azure and Alphabet Inc’s Google.

The company recently signed multiple cloud services contracts, including with British telecom operator Vodafone Plc and French bank BNP Paribas

Cloud business, part of what IBM refers to as “strategic imperatives”, grew 12 percent to $19.2 billion in 2018.

Underscoring the push into cloud, IBM in October agreed to buy Red Hat Inc for $34 billion and is also shedding some of its businesses.

The company forecast adjusted operating earnings for 2019 to be “at least” $13.90 per share, while analysts on average were expecting $13.79, according to IBES data from Refinitiv.

However, IBM, guided 2019 free cash flow below analysts’ expectation. The company expects free cash flow of about $12 billion for the year, compared with expectations of $12.67 billion.

IBM said revenue slipped to $21.76 billion in the three months ended Dec. 31, but came in above analysts’ average estimate of $21.71 billion.

Throughout the year, the strengthening of the dollar cost over $2 billion of revenue in 2018, Kavanaugh said.

The Armonk, New York-based technology services giant makes over 60 percent of its revenue from outside the United States.

The company’s cognitive software business, which houses artificial intelligence platform Watson, analytics and cybersecurity services, reported sales of $5.46 billion, compared with analysts’ expectation of $5.25 billion.

IBM’s revenue of $4.32 billion from its global businesses services segment also beat estimates of $4.15 billion.

Excluding special items, the company earned $4.87 per share, above expectations of $4.82.

Reporting by Pushkala Aripaka in Bengaluru; Editing by Sriraj Kalluvila

Our Standards:The Thomson Reuters Trust Principles.