IBM Beats - Revenue Slides Again

January 22, 2021

Strong hybrid cloud adoption; Gross margin expansion; Solid cash generation

IBM reported fourth-quarter and full-year 2020 earnings results. Big Blue had EPS of $2.07 per share, adjusted with only $1.79 per share expected by analysts. Revenue came in at $20.37 billion with $20.67 billion sought by investors.

But, the firm revenue was down 6% on an annualized basis which was the fourth consecutive quarter of declines.

“We made progress in 2020 growing our hybrid cloud platform as the foundation for our clients’ digital transformations while dealing with the broader uncertainty of the macro environment." said Arvind Krishna, IBM chairman and chief executive officer. "The actions we are taking to focus on hybrid cloud and AI will take hold, giving us confidence we can achieve revenue growth in 2021.”

“In 2020 we increased investment in our business across R&D and CAPEX, and since October, announced the acquisition of seven companies focused on hybrid cloud and AI," said James Kavanaugh, IBM senior vice president and chief financial officer. "With solid cash generation, steadily expanding gross profit margins, disciplined financial management and ample liquidity, we are well positioned for success as the leading hybrid cloud platform company.”

Full-year 2020 Results

Full-year results reflect transaction-related impacts associated with the Red Hat acquisition, which closed in July 2019, and the impact of the $2.04 billion pre-tax charge for structural actions in the fourth quarter.

Diluted earnings per share from continuing operations was $6.13 compared to $10.57 in 2019, a decrease of 42 percent. Net income from continuing operations was $5.5 billion, down 42 percent year to year. Revenues for the full year 2020 totaled $73.6 billion, a decrease of 4.6 percent year to year (down 3.5 percent adjusting for divested businesses and currency) compared with $77.1 billion for the full year 2019.

Operating (non-GAAP) diluted earnings per share from continuing operations was $8.67 compared with $12.81 per diluted share for 2019, a decrease of 32 percent. Operating (non-GAAP) net income for the full year ended December 31, 2020 was $7.8 billion compared with $11.4 billion in the prior-year period, a decrease of 32 percent.

Full-Year 2021 Expectations

The company expects to grow revenue for the full year 2021 based on the current foreign exchange rates. The company also expects adjusted free cash flow of $11 billion to $12 billion in 2021. Adjusted free cash flow excludes approximately $3 billion of cash impacts from the company’s structural actions initiated in the fourth quarter of 2020 and the transaction costs associated with the separation of the managed infrastructure services business.