IBM today reported results for the second quarter of the year. Despite the highest revenue growth in a decade, the stock is down more than 6%.
Sales are up 9% year-over-year. That was helped by Kyndryl, which was created by spinning off IBM’s managed infrastructure services division. The company made this move back in November, and this separate company should continue to grow nicely going forward.
IBM CFO Jim Kavanaugh said.
“We’re planning for about five to six points of revenue growth from sales to Kyndryl in 2022.”
Earnings per share (EPS) were $2.31, beating analysts’ estimates by only $0.02, so this metric didn’t show us any surprises.
Other results, however, are not bad at all
Software revenue was up 6% to $6.17 billion.
The consulting division also fared well, with $4.81 billion in revenue, up nearly 10% and well ahead of analysts’ estimates.
An even bigger jumper was the Infrastructure division, which includes mainframe computers. It had sales of $4.24 billion, up 19% and also well ahead of analysts’ expectations.
Gross margin, however, declined 1.8% from 55.2% to 53.4% in the previous quarter.
Jim Kavanaugh added.
“Consulting, which makes up well over half of IBM’s workforce, is most impacted by the inflationary labor market and increasing labor cost as we bring new talent on board and increase capacity.”
Outlook and free cash flow will be weaker
The company gave guidance for the year at $10 billion, the low end of the range the company reported in its first quarter results. IBM is not benefiting at all from the strong dollar and the company’s exit from Russia.
Jim Kavanaugh commented.
“That was a very highly-profitable business for us and that’s going to cost a couple hundred million dollars worth of free cash flow and profit by the way in 2022.”