IBM Q4 Exceeds
January 20, 2017
reported fourth-quarter and full-year 2016 earnings results. Not
including certain items, IBM earned $5.01 per share with investors
expecting $4.88 per share. Big Blue's revenue ticked down 1.3 percent to
$21.77 billion, but investors were only looking for of $21.64 billion.
IBM guided adjusted earnings of at least $13.80 per share for fiscal
2017, with the Street anticipating $13.74
"In 2016, our
strategic imperatives grew to represent more than 40 percent of our
total revenue and we have established ourselves as the industry's
leading cognitive solutions and cloud platform company," said Ginni
Rometty, IBM chairman, president and chief executive officer. "IBM
Watson is the world's leading AI platform for business, and emerging
solutions such as IBM Blockchain are enabling new levels of trust in
transactions of every kind. More and more clients are choosing the IBM
Cloud because of its differentiated capabilities, which are helping to
transform industries, such as financial services, airlines and retail."
"In 2016, we again made substantial capital investments, increased our
R&D spending and acquired 15 companies -- a total of more than $15
billion across these elements. The acquisitions further strengthened our
capabilities in analytics, security, cognitive and cloud, while
expanding our level of industry expertise with additions such as Truven
Health Analytics and Promontory Financial Group,” said Martin Schroeter,
IBM senior vice president and chief financial officer. "At the same
time, we returned almost $9 billion to shareholders through dividends
and gross share repurchases."
Fourth-quarter cloud revenues increased 33 percent. The annual exit run
rate for cloud as-a-service revenue increased to $8.6 billion from $5.3
billion at year-end 2015. Revenues from analytics increased 9 percent.
Revenues from mobile increased 16 percent (up 17 percent adjusting for
currency) and revenues from security increased 7 percent (up 8 percent
adjusting for currency).
For the full year, revenues from strategic imperatives increased 13
percent (up 14 percent adjusting for currency). Cloud revenues increased
35 percent to $13.7 billion. The annual exit run rate for cloud
as-a-service revenue increased 61 percent (up 63 percent adjusting for
currency) year to year. Revenues from analytics increased 9 percent.
Revenues from mobile increased 34 percent (up 35 percent adjusting for
currency) and from security increased 13 percent (up 14 percent
adjusting for currency).
Full-Year 2017 Expectations
The company expects operating (non-GAAP) diluted earnings per share of
at least $13.80 and GAAP diluted earnings per share of at least $11.95.
Operating (non-GAAP) diluted earnings per share exclude $1.85 per share
of charges for amortization of purchased intangible assets, other
acquisition-related charges and retirement-related charges. IBM expects
a free cash flow realization rate in excess of 90 percent of GAAP net
Cash Flow and Balance Sheet
In the fourth quarter, the company generated net cash from operating
activities of $3.2 billion; or $5.6 billion excluding Global Financing
receivables. IBM’s free cash flow was $4.7 billion. IBM returned $1.3
billion in dividends and $0.9 billion of gross share repurchases to
shareholders. At the end of December 2016, IBM had $5.1 billion
remaining in the current share repurchase authorization.
The company generated full-year free cash flow of $11.6 billion,
excluding Global Financing receivables. The company returned $8.8
billion to shareholders through $5.3 billion in dividends and $3.5
billion of gross share repurchases.
IBM ended the fourth-quarter 2016 with $8.5 billion of cash on hand.
Debt, including Global Financing debt of $27.9 billion, totaled $42.2
billion. Core (non-Global Financing) debt totaled $14.3 billion. The
balance sheet remains strong and is well positioned to support the
business over the long term.
Segment Results for Fourth Quarter
(includes solutions software and transaction processing software) --
revenues of $5.3 billion, up 1.4 percent (up 2.2 percent adjusting for
currency) were driven by growth in cloud, analytics and security.
Global Business Services (includes consulting, global process services
and application management) -- revenues of $4.1 billion, down 4.1
percent (down 3.6 percent adjusting for currency).
Technology Services &
Cloud Platforms (includes infrastructure services, technical support
services and integration software) -- revenues of $9.3 billion, up 1.7
percent (up 2.4 percent adjusting for currency). Growth was driven by
strong hybrid cloud services, analytics and security performance.
systems hardware and operating systems software) -- revenues of $2.5
billion, down 12.5 percent (down 12.1 percent adjusting for currency).
Gross profit margins improved driven by z Systems performance.
(includes financing and used equipment sales) -- revenues of $447
million, down 1.5 percent (down 2.1 percent adjusting for currency).
Full-Year 2016 Results
earnings per share from continuing operations were $12.39, down 9
percent compared to the 2015 period. Net income from continuing
operations for the twelve months ended December 31, 2016 was $11.9
billion compared with $13.4 billion in the year-ago period, a decrease
of 11 percent.
Consolidated net income was $11.9 billion compared to $13.2 billion in
the year-ago period. Consolidated diluted earnings per share were $12.38
compared to $13.42, down 8 percent year to year. Revenues from
continuing operations for the twelve-month period totaled $79.9 billion,
a decrease of 2 percent year to year compared with $81.7 billion for the
twelve months of 2015.
Operating (non-GAAP) diluted earnings per share from continuing
operations were $13.59 compared with $14.92 per diluted share for the
2015 period, a decrease of 9 percent. Operating (non-GAAP) net income
from continuing operations for the twelve months ended December 31, 2016
was $13.0 billion compared with $14.7 billion in the year-ago period, a
decrease of 11 percent.