IBM cut its full-year revenue growth outlook after second-quarter sales missed estimates, blaming large deals that slipped rather than vanished. Analysts say the company kept its free-cash-flow target intact but must now hit its new numbers to win back investors.
IBM lowered its revenue outlook, and analysts say the burden is now on the company to deliver against the reset targets. IBM said Wednesday it expects revenue growth on a constant-currency basis of between 4% and 5% for the year, down from a previous forecast of above 5%.
The company traced the shortfall to timing rather than lost business. Commentary on the earnings call from the Armonk, N.Y.-headquartered company pointed to large deals that produced quarterly revenue of $17.16 billion, below estimates of $17.58 billion, being delayed as opposed to missed. A third of those deals closed in July, according to that commentary.
The cash-flow target held
Despite the lower revenue guidance, the technology company maintained its expectation for free cash flow to increase by about $1 billion in 2026. J.P. Morgan strategists led by Brian Essex called that a bright spot, having expected forecasts there to be cut as well. According to J.P. Morgan: "IBM now needs to execute to build investor confidence in the outlook".
Investors wait for proof
The stock moved on the results. Shares of IBM slid 2.5% in premarket trading after falling more than 2% during Wednesday’s session, before the company reported results for the three months that ended June 30.
Other analysts weighed in. Stifel analysts led by David Grossman wrote that the missed deals were one of the biggest disclosures in the results, noting the company made clear it did not cut prices to speed up processes. Oppenheimer analysts Param Singh and Jake Heimowitz said they see it taking several quarters before IBM can recover to constant currency upward of 5%, and want the company to prioritize organic growth over large acquisitions.
Source: MarketWatch
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