IBM first-quarter profit margins fell to 43.7 percent, shares down

IBM first-quarter profit margins fell to 43.7 percent, shares down


International Business Machines Corp (IBM) announced its financial results for the first quarter after the close of market on Tuesday. Its quarterly earnings and revenue surpassed estimates, though profit margins missed Wall Street expectations, sending its shares down more than 5 percent in the after-hours trading.

The New York-based company has started focusing more on higher-margin products including cloud computing and cybersecurity to make up for the slow growth in its hardware and software businesses. However, the push into new businesses hasn’t work the way some investors and analysts initially believed.

IBM’s adjusted gross profit margin slipped to 43.7 percent in the quarter, as compared to 44.5 percent in the same period last year. The company blamed “significant” one-time charges for the decline. CFO James Kavanaugh said IBM took a $610 million charge in Q1, but he didn’t reveal the details.

An analyst at Wedbush Securities, Moshe Katri said the company’s legacy hardware business keeps weighing on margins. Its more about profitable growth rather than just topline growth, he added.

The company took benefit of $810 million following changes in the United States tax law.

Looking forward, the company expects to report adjusted profit of at least $13.80 per share for the full year, below $13.83 per share estimated by analysts polled by Thomson Reuters.

Overall, IBM posted earnings of $1.68 billion, or $1.81 a share for the latest quarter ended March 31, as compared to $1.75 billion, or $1.85 per share, in the same period last year. On an adjusted basis, earnings were $2.45 a share, surpassing the average analysts’ forecast of $2.42 a share.

Revenue for the quarter came in at $19.07 billion, representing a surge of 5 percent from the comparable quarter last year.

Revenue from security services climbed 64 percent, while Cloud sales jumped 25 percent.