IBM Presented Extremely Upbeat 1H Results, but Raised Concern about Significant Appreciation of USD

The baton of quarterly reports is moving from banks to stocks in other important sectors. After the release of the company's financial statements, its shares in the postmarket fell by 5.9%. Share Price now is $130.04. Investors may have been spooked by the company’s slightly downbeat guidance, eyeing significant appreciation of USD given the fact that more than half of IBM’s revenues comes from overseas.

Apart from that valid concern, all segments grew strongly with infrastructure revenue actually delivering a whopping +25% on a constant currency basis. IBM beat estimates on top (by 2%) and bottom line and delivered $2.31 in non-GAAP earnings.

All in all, its financial results were as follows (compared to Q2 2021 unless otherwise stated):

Revenue of $15.5 billion, up 9%, or up 16% in constant currency (including about 5 bps from Kyndryl's sales). Software division revenue grew 6%, up 12% in constant currency basis. The Consulting division's revenue grew 10%, up 18% in constant currency. Infrastructure division revenue grew 19%, up 25% in constant currency. Hybrid cloud revenue: $21.7 billion over the past 12 months, up 16%, or up 19% on constant currency basis.

GAAP gross profit came in at $8.3 billion, up 6%, while net income jumped up 81% to $1.5 billion; diluted earnings per share of $1.61, were up 79%. Non-GAAP Gross Profit of $8.5 billion was up 5%; non-GAAP net income of $2.1 billion was up 45%; diluted earnings per share of $2.31, up 43%. Year-to-date operating cash flow was $4.6 billion and free cash flow was $3.3 billion. IBM ended the second quarter with $7.8 billion in cash (including liquid securities), up $0.2 billion from the end of 2021. The company's debt dropped to $50.3 billion, down $1.4 billion as of the end of 2021. The company returned $1.5 billion to shareholders in the form of dividends.

Bottom line: The company delivered strong revenue and earnings growth this quarter with balanced growth across IBM divisions driven by demand for hybrid cloud and artificial intelligence. Given the 1H results, the company still expects further growth in revenue for FY and about $10 billion in consolidated free cash flow. Especially worth noting is the fact that amidst Fed’s monetary tightening the company's debt is gradually decreasing.