IBM beat Wall Street estimates for third-quarter earnings and revenue and raised its full-year free cash flow forecast. Shares slipped in extended trading, and the company's adjusted gross margin came in narrower than analysts expected.
IBM shares slipped in extended trading on Wednesday after the technology vendor reported better-than-predicted third-quarter results. The company posted adjusted earnings of $2.95 per share against $2.86 expected, according to LSEG consensus.
Revenue reached $17.10 billion versus $16.82 billion expected, and it grew about 5% from a year ago. Net income was $2.19 billion, or $2.30 per share, up from $1.74 billion, or $1.84 per share, a year earlier.
Software and infrastructure top forecasts, consulting lags
Software revenue grew 8% to $7.80 billion, above the $7.66 billion consensus among analysts polled by StreetAccount. Infrastructure revenue rose 4% to $3.70 billion, against a $3.57 billion consensus.
Consulting, however, was flat at $5.34 billion, just below StreetAccount's $5.37 billion consensus. The consulting unit's gross margin narrowed to 27.4% from 28.9% in the second quarter. Across the company, the adjusted gross margin of 58.5% was narrower than the StreetAccount consensus of 59.1%.
Cash flow forecast moves up
IBM raised its full-year free cash flow forecast. It now calls for an increase of more than $1 billion. The forecast as of July was a bump of approximately $1 billion. IBM still sees 2026 constant-currency revenue growth between 4% and 5%.
Finance chief Jim Kavanaugh said on a conference call that AI is increasingly embedded in broader transformations clients are undertaking. He put it at about 30% of consulting revenue in the quarter and 35% of the backlog.
On the full-year outlook, Kavanaugh said street estimates are about $32 billion of revenue. According to CNBC: "We feel comfortable with that $32 billion of revenue."
As of Wednesday's close, IBM stock had come down 15%, while the S&P 500 had gained 13%.
Source: CNBC
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