Tuesday, April 19, 2011

IBM Corp. (NYSE: IBM): Q1 Earnings Preview 2011

International Business Machines Corp. (NYSE: IBM), the world's largest computer-services provider, is scheduled to release first-quarter earnings after the closing bell on Tuesday, April 19, 2011. Analysts, on average, expect the company to report earnings of $2.30 per share on revenue of $24.02 billion. In the year ago quarter, the company reported earnings of $1.97 per share on revenue of $22.86 billion.

International Business Machines Corporation, often considered a technology bellwether, develops and manufactures information technology products and services worldwide. Its Global Technology Services segment offers IT infrastructure and business process services, such as strategic outsourcing, integrated technology, business transformation outsourcing, and maintenance. The company dominates mainframe and server market.

In the preceding fourth quarter, the Armonk, New York-based company's net income was $5.25 billion or $4.18 per share from $4.81 billion or $3.59 per share in the previous year.  Revenue grew 6.6% to $29.02 billion from $27.23 billion. Analysts, on average, expected the company to report earnings of $4.08 per share on revenue of $28.26 billion. 

At its last earnings call in January, IBM said that it expects GAAP earnings of at least $12.56 per share and operating earnings, a non-GAAP measure, of at least $13.00 per share. Operating earnings for 2011 exclude $0.44 per share for the amortization of purchased intangible assets, other acquisition-related charges and certain retirement-related costs.

The company's goal for 2015 is to reach $20 of earnings per share. The company’s projections for 2015 assume about 5 percent in annual sales growth. IBM plans to save $8 billion through productivity gains by 2015, while free cash flow should reach $100 billion over that span. The company plans to give 70 percent of the cash flow to shareholders.

Acquisitions are a key part of IBM's growth strategy. The company has been investing in acquisitions to build its skills and technology in support of growth initiatives such as business analytics, and cloud computing. Last year, Chief Executive Officer Sam Palmisano said that he plans to spend $20 billion on acquisitions in the next five years.

IBM is poised to benefit from the growth in corporate spending on information technology. Global spending on information technology is expected to grow 5.1% in 2011 to $3.6 trillion, according to research firm Gartner. 

However,  IBM's first-quarter earnings could be impacted by the recent earthquake and tsunami in Japan. According to industry experts, roughly 11% of IBM's revenue originate in Japan.

During the quarter in review, the company launched a new initiative called “Smarter Commerce,” which IBM says is focused on helping its customers use software and services to improve marketing efforts. Some of the features include analytic tools so that clients can better market their products over social-networking sites such as Facebook and Twitter, according to IBM.

The company's stock currently trades at a forward P/E (fye Dec 31, 2012) of 11.37 and PEG ratio (5 yr expected) of 1.15. In terms of stock performance, IBM shares have gained nearly 25 percent over the past year.

Full Disclosure: None.
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