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Jan. 21, 2021, 6:01 p.m. EST

IBM earnings and revenue continue to shrink, stock falls 6%

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By Jeremy C. Owens

While 2020 was an odd year, one thing remained the same: IBM earnings and sales continued to shrink.

International Business Machines Corp. /zigman2/quotes/203856914/composite IBM -2.89% on Thursday afternoon reported a decline in adjusted net income for at least the seventh consecutive year, and a stepdown in sales for the eighth year out of the past nine, according to FactSet records. Analysts expected Big Blue to maintain or improve both earnings and revenue at the beginning of 2020, the first full year with large software acquisition Red Hat, but the COVID-19 pandemic led adjusted profits to decline by nearly a third in 2020.

For the fourth quarter, IBM reported net income of $1.36 billion, or $1.51 a share, down from $4.11 a share last year. After adjusting for a large restructuring charge and other effects, IBM reported earnings of $2.07 a share, down from $4.79 a share in the fourth quarter of 2019.

Sales declined to $20.37 billion from $21.78 billion the year before, coming off IBM’s lowest quarterly revenue since 1997 ; IBM revenue has fallen year-over-year in all but four of the past 34 quarters. Analysts had expected adjusted earnings of $1.81 a share for the quarter on sales of $20.7 billion.

For the year, IBM adjusted earnings fell to $8.67 a share from $12.81 a share in 2019, and revenue dropped to $73.62 billion from $77.15 billion. At the beginning of 2020, analysts expected IBM to produce adjusted earnings of $13.30 a share on sales of $79.4 billion, according to FactSet, but expectations took a sharp dive after the pandemic hit.

In 2021, Big Blue will be getting smaller intentionally, with the planned spin-off of its managed-infrastructure business by the end of the year. Along with the Red Hat merger and the installation of new Chief Executive Arvind Krishna , the spin-off is part of an effort to better position IBM as a powerhouse in hybrid-cloud infrastructure.

Krishna said Thursday that IBM expects to grow revenue in 2021, but the story is more complicated than just that.

“In spite of the many challenges in 2020, we have made good progress. In 2021, we believe we will see that progress showing up in our results,” Krishna said in a conference call Thursday afternoon. “With that said, we know it’s not necessarily going to be a straight line.”

Krishna did reaffirm his expectations for the company following the spin-out, which call for “sustainable mid-single-digit revenue growth post separation with strong free cash flow performance.”

Bernstein Research analyst Toni Sacconaghi wrote ahead of the report that he considered IBM’s projections for mid-single-digit revenue growth in 2022 to be “unrealistic.” On average, analysts were projecting 2021 adjusted earnings of $11.36 a share and revenue of $74.76 billion ahead of the report.

“Q4 will be a messy (and tough revenue) quarter, 2021 is a transition year with poor revenue growth and FCF, and investors are likely to sit on their hands until more details on the spin-out,” Sacconaghi wrote.

IBM stock fell more than 6% in after-hours trading following the release of the results. Shares have declined 5.1% in the past year, as the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -1.50% — which counts Big Blue as a component — has gained 6.8% and the S&P 500 /zigman2/quotes/210599714/realtime SPX -0.48% has gained 16%.

/zigman2/quotes/203856914/composite
US : U.S.: NYSE
$ 118.93
-3.54 -2.89%
Volume: 9.05M
Feb. 26, 2021 4:00p
P/E Ratio
19.07
Dividend Yield
5.48%
Market Cap
$109.44 billion
Rev. per Employee
$196,163
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/zigman2/quotes/210598065/realtime
US : Dow Jones Global
30,932.37
-469.64 -1.50%
Volume: 538.91M
Feb. 26, 2021 5:04p
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/zigman2/quotes/210599714/realtime
US : S&P US
3,811.15
-18.19 -0.48%
Volume: 3.12B
Feb. 26, 2021 5:04p
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