IBM beat Wall Street estimates for third-quarter earnings and revenue and raised its full-year free cash flow forecast. Its gross margin came in narrower than analysts expected, and the shares slipped in extended trading.
IBM shares slipped in extended trading on Wednesday after the technology vendor reported better-than-predicted third-quarter results. Adjusted earnings reached $2.95 per share against $2.86 expected, according to LSEG consensus.
Revenue also topped forecasts, at $17.10 billion versus $16.82 billion expected. That marked growth of about 5% from a year ago. Net income rose to $2.19 billion, or $2.30 per share, from $1.74 billion, or $1.84 per share, a year earlier.
IBM lifts its free cash flow outlook
IBM now expects full-year free cash flow to increase by more than $1 billion. The July forecast called for a bump of approximately $1 billion. Meanwhile, the company still sees 2026 constant-currency revenue growth between 4% and 5%.
However, the free cash flow upgrade arrived alongside a narrower margin. IBM's adjusted gross margin of 58.5% was narrower than the StreetAccount consensus of 59.1%.
Software and infrastructure beat, consulting lags
Software revenue grew 8% to $7.80 billion, above the $7.66 billion consensus among analysts polled by StreetAccount. Infrastructure revenue rose 4% to $3.70 billion, higher than the $3.57 billion consensus.
Consulting, by contrast, was flat at $5.34 billion, just below StreetAccount's $5.37 billion consensus. The consulting unit's 27.4% gross margin narrowed from 28.9% in the second quarter. Finance chief Jim Kavanaugh said on a conference call that AI represents about 30% of consulting revenue in the quarter and 35% of backlog.
AI pitch and an acquisition
According to CEO Arvind Krishna in a statement: "deploying 'Super Intelligence' in ways that transform entire operating models". During the quarter, IBM also agreed to buy Boeing and General Motors' HRL Laboratories, formerly known as Hughes Aircraft's research division, for an undisclosed sum.
As of Wednesday's close, IBM stock had come down 15%, while the S&P 500 index had gained 13%.
Source: CNBC
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