IBM Beats Earnings And Sales Estimates, Issues Robust 2013 Guidance

IBM

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UPDATE: IBM’s Q4 2012 earnings report is out.Click here to refresh for LIVE updates >

The company reported earnings of $5.39 per share versus estimates of $5.25.

The company also beat expectations on revenues, reporting sales of $29.3 billion (analysts were only looking for  $24.705 billion).

Finally, IBM issued guidance for full-year 2013 earnings of $16.70 per share, exceeding estimates of $16.64.

Shares are up more than 3 per cent in after-hours trading.

Below is the full text from the release:

ARMONK, N.Y.–(BUSINESS WIRE)–

IBM (IBM)

Fourth-Quarter 2012:

  • Diluted EPS: GAAP: $5.13, up 11 per cent; Operating (non-GAAP): $5.39, up 14 per cent;
  • GAAP: $5.13, up 11 per cent;
  • Operating (non-GAAP): $5.39, up 14 per cent;
  • Net income: GAAP: $5.8 billion, up 6 per cent; Operating (non-GAAP): $6.1 billion, up 10 per cent;
  • GAAP: $5.8 billion, up 6 per cent;
  • Operating (non-GAAP): $6.1 billion, up 10 per cent;
  • Gross profit margin: GAAP: 51.8 per cent, up 1.8 points; Operating (non-GAAP): 52.3 per cent, up 2.1 points;
  • GAAP: 51.8 per cent, up 1.8 points;
  • Operating (non-GAAP): 52.3 per cent, up 2.1 points;
  • Revenue of $29.3 billion, down 1 per cent, flat adjusting for currency: Up 1 per cent excluding divested RSS business adjusting for currency;
  • Up 1 per cent excluding divested RSS business adjusting for currency;
  • Free cash flow of $9.5 billion, up $0.6 billion;
  • Software revenue up 3 per cent, up 4 per cent adjusting for currency;
  • Services revenue down 2 per cent, down 1 per cent adjusting for currency;
  • Services backlog of $140 billion, flat, up $1 billion adjusting for currency;
  • Systems and Technology revenue down 1 per cent, up 4 per cent excluding RSS: System z mainframe up 56 per cent.
  • System z mainframe up 56 per cent.

Full-Year 2012:

  • Diluted EPS, up double-digits for 10th consecutive year: GAAP: $14.37, up 10 per cent; Operating (non-GAAP): $15.25, up 13 per cent;
  • GAAP: $14.37, up 10 per cent;
  • Operating (non-GAAP): $15.25, up 13 per cent;
  • Net income: GAAP: $16.6 billion, up 5 per cent; Operating (non-GAAP): $17.6 billion, up 8 per cent;
  • GAAP: $16.6 billion, up 5 per cent;
  • Operating (non-GAAP): $17.6 billion, up 8 per cent;
  • Revenue of $104.5 billion, down 2 per cent, flat adjusting for currency;
  • Free cash flow of $18.2 billion, up $1.6 billion;
  • Growth markets revenue up 4 per cent, up 7 per cent adjusting for currency: BRIC countries up 7 per cent, up 12 per cent adjusting for currency;
  • BRIC countries up 7 per cent, up 12 per cent adjusting for currency;
  • Business analytics revenue up 13 per cent;
  • Smarter Planet revenue up more than 25 per cent;
  • Cloud revenue up 80 per cent.

Full-Year 2013 Expectation:

  • GAAP EPS of at least $15.53 and operating (non-GAAP) EPS of at least $16.70.

IBM (IBM) today announced fourth-quarter 2012 diluted earnings of $5.13 per share, compared with diluted earnings of $4.62 per share in the fourth quarter of 2011, an increase of 11 per cent. Operating (non-GAAP) diluted earnings were $5.39 per share, compared with operating diluted earnings of $4.71 per share in the fourth quarter of 2011, an increase of 14 per cent.

Fourth-quarter net income was $5.8 billion compared with $5.5 billion in the fourth quarter of 2011, an increase of 6 per cent. Operating (non-GAAP) net income was $6.1 billion compared with $5.6 billion in the fourth quarter of 2011, an increase of 10 per cent.

Total revenues for the fourth quarter of 2012 of $29.3 billion decreased 1 per cent (flat adjusting for currency) from the fourth quarter of 2011. Without the impact of the divested Retail Store Solutions (RSS) business, revenue increased 1 per cent, adjusting for currency.

“We achieved record profit, earnings per share and free cash flow in 2012. Our performance in the fourth quarter and for the full year was driven by our strategic growth initiatives — growth markets, analytics, cloud computing, Smarter Planet solutions — which support our continued shift to higher-value businesses,” said Ginni Rometty, IBM chairman, president and chief executive officer.

“Looking ahead, we continue to invest to deliver innovations for the enterprise in key areas such as big data, mobile solutions, social business and security, while expanding into new markets and reaching new clients. We are well on track toward our long-term roadmap for operating EPS of at least $20 in 2015.”

Fourth-Quarter GAAP – Operating (non-GAAP) Reconciliation

Fourth-quarter operating (non-GAAP) diluted earnings exclude $0.26 per share of net charges: $0.21 per share for the amortization of purchased intangible assets and other acquisition-related charges, and $0.05 per share for retirement-related items driven by changes to plan assets and liabilities primarily related to market performance.

Full-Year 2013 Expectation

IBM said that it expects to deliver full-year 2013 GAAP earnings per share of at least $15.53; and operating (non-GAAP) earnings per share of at least $16.70. The 2013 operating (non-GAAP) earnings exclude $1.17 per share of charges for amortization of purchased intangible assets, other acquisition-related charges, and retirement-related items driven by changes to plan assets and liabilities primarily related to market performance.

Geographic Regions

The Americas’ fourth-quarter revenues were $12.5 billion, flat (up 1 per cent, adjusting for currency) from the 2011 period. Revenues from Europe/Middle East/Africa were $9.1 billion, down 5 per cent (down 3 per cent, adjusting for currency). Asia-Pacific revenues increased 4 per cent (up 5 per cent, adjusting for currency) to $7.0 billion. OEM revenues were $679 million, down 5 per cent compared with the 2011 fourth quarter.

Growth Markets

Revenues from the company’s growth markets increased 7 per cent. Revenues in the BRIC countries — Brazil, Russia, India and China — increased 11 per cent (up 14 per cent, adjusting for currency).

Services

Global Technology Services segment revenues decreased 2 per cent (flat adjusting for currency) to $10.3 billion. Global Business Services segment revenues were down 3 per cent (down 2 per cent, adjusting for currency) at $4.7 billion.

Pre-tax income from Global Technology Services increased 5 per cent; pre-tax margin increased to 19.2 per cent. Global Business Services pre-tax income was flat; pre-tax margin increased to 17.2 per cent.

The estimated services backlog at December 31 was $140 billion, flat (up $1 billion, adjusting for currency).

Software

Revenues from the Software segment were $7.9 billion, an increase of 3 per cent (up 4 per cent, adjusting for currency) from the fourth quarter of 2011. Software pre-tax income of $4.0 billion increased 8 per cent year over year.

Revenues from IBM’s key middleware products, which include WebSphere, Information Management, Tivoli, Lotus and Rational products, were $5.5 billion, an increase of 5 per cent (up 6 per cent, adjusting for currency) versus the fourth quarter of 2011. Operating systems revenues of $709 million were flat (up 1 per cent, adjusting for currency) compared with the prior-year quarter.

Revenues from the WebSphere family of software products increased 11 per cent year over year. Information Management software revenues increased 2 per cent. Revenues from Tivoli software increased 4 per cent. Revenues from Lotus software increased 9 per cent, and Rational software increased 12 per cent.

Hardware

Revenues from the Systems and Technology segment totaled $5.8 billion for the quarter, down 1 per cent from the fourth quarter of 2011. Excluding Retail Store Solutions (RSS), revenues were up 4 per cent. Systems and Technology pre-tax income was $1.0 billion, an increase of 23 per cent.

Total systems revenues, excluding RSS, increased 4 per cent. Revenues from System z mainframe server products increased 56 per cent compared with the year-ago period; revenue in the growth markets increased 68 per cent. Total delivery of System z computing power, as measured in MIPS (millions of instructions per second), increased 66 per cent versus the prior year and represented the largest MIPS shipment quarter in the company’s history. New workload specialty engines, including Linux, represented one-half of the MIPS shipped. Revenues from Power Systems decreased 19 per cent compared with the 2011 period. Revenues from System x decreased 2 per cent. Revenues from System Storage decreased 5 per cent. Revenues from Retail Store Solutions decreased $239 million year over year as a result of the divestiture in the third quarter. Revenues from Microelectronics OEM increased 4 per cent.

Financing

Global Financing segment revenues were down 2 per cent (down 1 per cent, adjusting for currency) in the fourth quarter to $535 million. Pre-tax income for the segment increased 1 per cent to $518 million.

Gross Profit

The company’s total gross profit margin was 51.8 per cent in the 2012 fourth quarter compared with 49.9 per cent in the 2011 fourth-quarter period. Total operating (non-GAAP) gross profit margin was 52.3 per cent in the 2012 fourth quarter compared with 50.2 per cent in the 2011 fourth-quarter period, with increases in Services, Software and Hardware.

Expense

Total expense and other income decreased 2 per cent to $7.3 billion compared with the prior-year period. S,G&A expense of $5.9 billion decreased 3 per cent year over year compared with prior-year expense. R,D&E expense of $1.6 billion increased 2 per cent compared with the year-ago period. Intellectual property and custom development income decreased to $227 million compared with $253 million a year ago. Other (income) and expense was income of $47 million compared with prior-year income of $44 million. Interest expense decreased to $109 million compared with $113 million in the prior year.

Total operating (non-GAAP) expense and other income decreased 2 per cent to $7.2 billion compared with the prior-year period. Operating (non-GAAP) S,G&A expense of $5.8 billion decreased 3 per cent year over year compared with prior-year expense. Operating (non-GAAP) R,D&E expense of $1.6 billion increased 1 per cent compared with the year-ago period.

***

Pre-tax income increased 8 per cent to $7.8 billion; total operating (non-GAAP) pre-tax income increased 10 per cent to $8.1 billion. Pre-tax margin was 26.7 per cent, up 2.1 points; total operating (non-GAAP) pre-tax margin was 27.7 per cent, up 2.6 points.

IBM’s tax rate was 25.5 per cent, up 1.0 points year over year; total operating (non-GAAP) tax rate was 24.4 per cent, flat compared to the year-ago period.

Net income margin increased 1.3 points to 19.9 per cent; total operating (non-GAAP) net income margin was 20.9 per cent, an increase of 1.9 points.

The weighted-average number of diluted common shares outstanding in the fourth-quarter 2012 was 1.14 billion compared with 1.19 billion shares in the same period of 2011.

In the quarter, IBM generated free cash flow of $9.5 billion excluding Global Financing receivables, up $0.6 billion year over year.

Full-Year 2012 Results

Net income for the year ended December 31, 2012 was $16.6 billion compared with $15.9 billion in the prior year, an increase of 5 per cent. Operating (non-GAAP) net income was $17.6 billion compared with $16.3 billion in 2011, an increase of 8 per cent.

Diluted earnings were $14.37 per share compared with $13.06 per diluted share in 2011, an increase of 10 per cent. Operating (non-GAAP) diluted earnings were $15.25 per share, compared with operating diluted earnings of $13.44 per share in 2011, an increase of 13 per cent. This was the company’s 10th consecutive year of double-digit EPS growth.

Revenues for 2012 totaled $104.5 billion, a decrease of 2 per cent (flat adjusting for currency), compared with $106.9 billion in 2011.

GAAP – Operating (non-GAAP) Reconciliation

Operating (non-GAAP) diluted earnings for the year exclude $0.88 per share of net charges: $0.55 per share for the amortization of purchased intangible assets and other acquisition-related charges, and $0.33 per share for retirement-related items driven by changes to plan assets and liabilities primarily related to market performance.

Geographic Regions

From a geographic perspective, the Americas’ full-year revenues were $44.6 billion, a decrease of 1 per cent (flat adjusting for currency) from the 2011 period. Revenues from Europe/Middle East/Africa were $31.8 billion, a decrease of 6 per cent (down 1 per cent, adjusting for currency). Asia-Pacific revenues increased 3 per cent to $25.9 billion. OEM revenues were $2.2 billion, down 18 per cent compared with 2011.

Growth Markets

Revenues from the company’s growth markets increased 4 per cent (up 7 per cent, adjusting for currency), and represents 24 per cent of IBM’s total geographic revenue. Revenues in the BRIC countries — Brazil, Russia, India and China — increased 7 per cent (up 12 per cent, adjusting for currency).

Segments

Total Global Services revenues decreased 2 per cent (flat adjusting for currency). Revenues from the Global Technology Services segment totaled $40.2 billion, a decrease of 2 per cent (up 1 per cent, adjusting for currency) compared with 2011. Revenues from the Global Business Services segment were $18.6 billion, down 4 per cent (down 2 per cent, adjusting for currency). Software segment revenues in 2012 totaled $25.4 billion, an increase of 2 per cent (up 4 per cent, adjusting for currency). Systems and Technology segment revenues were $17.7 billion, a decrease of 7 per cent (down 6 per cent, adjusting for currency); excluding Retail Store Solutions, revenues were down 5 per cent (down 4 per cent adjusting for currency). Global Financing segment revenues totaled $2.0 billion, a decrease of 4 per cent (down 1 per cent, adjusting for currency).

***

The company’s total gross profit margin was 48.1 per cent in 2012 compared with 46.9 per cent in 2011. Overall gross profit margins improved year over year for the 9th consecutive year. Total operating (non-GAAP) gross profit margin was 48.7 per cent in the 2012 period compared with 47.2 per cent in the 2011 period, with increases in Services and Software.

The weighted-average number of diluted common shares outstanding in 2012 was 1.16 billion compared with 1.21 billion shares in 2011. As of December 31, 2012, there were 1.12 billion basic common shares outstanding.

Debt, including Global Financing, totaled $33.3 billion, compared with $31.3 billion at year-end 2011. From a management segment view, Global Financing debt totaled $24.5 billion versus $23.3 billion at year-end 2011, resulting in a debt-to-equity ratio of 7.0 to 1. Non-global financing debt totaled $8.8 billion, an increase of $0.8 billion since year-end 2011, resulting in a debt-to-capitalisation ratio of 36.1 per cent from 32.0 per cent.

IBM ended 2012 with $11.1 billion of cash on hand and generated free cash flow of $18.2 billion excluding Global Financing receivables, up approximately $1.6 billion year over year. The company returned $15.8 billion to shareholders through $3.8 billion in dividends and $12.0 billion of share repurchases. The company’s balance sheet remains strong and is well positioned to support the business over the long term.

Click here for the full release >

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ORIGINAL: Minutes away from IBM’s Q4 2012 earnings report, due out sometime after the closing bell at 4 PM ET.

Analysts expect IBM to report earnings of $5.25 per share, up from $3.62 per share in Q3.

Sales are expected to come in at $24.705 billion, down slightly from the $24.747 billion in revenues recorded in Q3.

IBM has reported earnings in line with analysts’ estimates for the past five quarters.

We will have the full release after the markets close. Click here to refresh for LIVE updates >

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