Monday, January 11, 2010

IBM Corp. (NYSE: IBM): Q4 Earnings Preview 2010

. Monday, January 11, 2010

By Stock Wizard

IBM Corp. (NYSE: IBM), the world's largest computer-services provider, is scheduled to release financial results for the fourth quarter after the market close on Tuesday, January 19, 2010. Analysts, on average, expect the company to report earnings of $3.47 per share on revenue of $26.96 billion. In the year ago quarter, the company reported earnings of $1.49 per share on revenue of $27.01 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. In the last 14 quarters, IBM has topped Wall Street estimates 13 times and met estimates once. The company dominates mainframe and server market.

In October, the Armonk, New York-based technology giant reported that its third quarter profit rose 14% from last year, as a lower tax rate, improved gross margins and strict cost control more than offset a 7% revenue drop. Net income climbed to $3.21 billion or $2.40 per share, compared to $2.82 billion or $2.04 per share, in the year-earlier period. Quarterly revenue dropped 7% to $23.57 billion from $25.30 billion in the same quarter last year. Analysts, on average, expected the company to report earnings of $2.38 per share on revenue of $23.40 billion. IBM chairman, president and chief executive officer Samuel Palmisano attributed the strong performance to the company's long-term strategic shift to higher-value businesses and improved revenue trends in our business and share gains in software and hardware."

The company's total gross margin for the third quarter expanded by 1.8 points to 45.1% from 43.3% a year ago, primarily due to better margins in services and software and a more profitable mix of business. Total expense and other income for the quarter decklined 11.5% year-over-year to $6.3 billion, with SG&A expenses down 11.2% and R&D expenses down 8.4%. IBM's effective tax rate in the third quarter was 26.5%, compared to 27.5% in the third quarter of last year. IBM generated $3.4 billion of free cash flow in the quarter, up $1.3 billion year to year.

The company said that it signed services contracts worth $11.8 billion during the third quarter, a decrease of 7% from last year, including 13 contracts greater than $100 million. IBM ended the third quarter with an estimated services backlog of $134 billion at actual rates, compared to $132 billion at June 30, and $129 billion a year ago.

IBM said in October that it expects full year 2009 earnings of at least $9.85 per share, compared to its prior guidance of at least $9.70 per share. Additionally, it expects about $3.5 billion of cost and expense savings this year from the structural actions."We are optimistic about 2009 as we again raise our full-year expectations and we remain well ahead of pace for our 2010 roadmap of $10 to $11 per share," Palmisano said in a statement.

IBM also stands to gain from worldwide economic recovery programs. In US, the company helped the Obama administration design its infrastructure investment plan while in China it is ready to bid for projects related to creating "smart" electrical grids, improving railroads and providing computer support for electronic patient records.

Acquisitions are a key part of IBM's growth strategy. Last month, the company announced the signing of a definitive agreement to acquire Lombardi, a privately held software company, in its attempt to meet the rising demand for business process managment solutions. Financial terms of the agreement were not disclosed. IBM said that Lombardi's department-level business approach complements its existing strengths in enterprise-wide process management software and adds a new dimension for customers looking for integrated solutions. Late in November, IBM announced that it has acquired Guardium, a privately held companyreal-time enterprise database monitoring and protection company. Guardium's technology helps clients safeguard data, monitor database activity and reduce operational costs by automating regulatory compliance tasks. Financial terms were not disclosed.

The company has consistently rewarded investors with share buybacks and dividends. Late in October, IBM approved $5 billion in share buybacks, reflecting the company's strong cash flows. The latest authorization was in addition to about $4.2 billion remaining at the end of September from a prior authorization. The Armonk, New York-based company also said it expects to request additional share buyback authorization at the April board meeting. Additionally, during the fourth quarter, the technology firm declared a regular quarterly cash dividend of $0.55 per share, payable on December 10 to stockholders of record on November 10.

The company is expected to deliver a strong fourth quarter as it bagged many big contracts and acquired several new clients during the period. In terms of stock performance, IBM shares are up 48% over the past year.

Full Disclosure: None.

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