IBM Earnings: The Good, the Bad and the Seesaw

When IBM (NYSE:IBM) reported earnings this week, the markets responded to the rise in income and great news on profits, sending the stock up after hours. However, the excitement waned by week’s end, an apparent response to the dip in revenue that came with the good news. Questions about IBM’s growth potential also lingered.

The Good 

There were several positives to take from IBM’s earnings report. Chief among them was the rise in earnings per share. Analysts had predicted $3.77 per share, but IBM trounced that figure, showing $3.91 per share for the second quarter of 2013, a rise of 8 percent matched against last year’s numbers.

IBM’s net income rose 3 percent to $4.3 billion for the second quarter, well above the expected $4.19 billion a consensus of analysts had predicted. The good news drove IBM shares up 3 percent after hours on Wednesday. Still, there were some negatives to take away from the earnings report.

The Bad 

IBM’s revenues were down a corresponding 3 percent for the second quarter of 2013, coming in at $24.9 billion. Analysts had expected $25.37 billion, while the company posted $25.78 billion in the second quarter of 2012. Investors seemed to absorb this information later on in the week.

By Friday, the gains of Wednesday had all but disappeared, though IBM did post a modest increase for the week at the final tally. Questions lingered about its long-range business prospects. While IBM did announce it was raising its non-GAAP EPS to $16.90 (from $16.70) for the year, the company pulled back on its hopes for the second-half gains it had predicted, according to CNBC.

The Seesaw 

Following disappointing first quarter figures, IBM felt the heat generated from its earnings miss. Investors were clearly excited by Wednesday’s report, but the feeling didn’t hold. Goldman Sachs downgraded IBM to a hold rating recently, as it forecast dark times ahead for earnings improvement.

Since IBM expressed consternation over currency manipulation in Japan, the more recent global issues in Brazil and China have led analysts to doubt the company’s growth potential. The struggles of other IT companies isn’t improving this outlook.

USA Today reports Bernstein Research International likes what IBM is doing domestically, yet isn’t convinced by its performance in emerging markets. Investor concerns mirrored that sentiment this week.

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