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IBM Rings Up $77.1B 2019 Revenue, Down 3.1%; Quarterly Red Hat Revenue Up 24%

Highlights

Fourth Quarter:

  • GAAP EPS from continuing operations of $4.11
  • Operating (non-GAAP) EPS of $4.71
  • Revenue of $21.8 billion, up 0.1 percent

-- up 1 percent adjusting for currency
-- up 3 percent adjusting for divested businesses and currency

  • Red Hat revenue, up 24 percent, normalized for historical comparability
  • Revenue growth in Cloud & Cognitive Software and Systems segments

-- Cloud & Cognitive Software up 9 percent
-- Systems up 16 percent

  • Total cloud revenue of $6.8 billion, up 21 percent (up 23 percent adjusting for divested businesses and currency)
  • GAAP gross profit margin up 190 basis points; Operating (non-GAAP) gross profit margin up 230 basis points
  • Debt reduced by $10 billion since closing the Red Hat acquisition

Full Year:

  • GAAP EPS from continuing operations of $10.57; Operating (non-GAAP) EPS of $12.81
  • Revenue of $77.1 billion, down 3.1 percent (up 0.2 percent adjusting for divested businesses and currency)
  • Total cloud revenue of $21.2 billion, up 11 percent (up 14 percent adjusting for divested businesses and currency)
  • Net cash from operating activities of $14.8 billion and free cash flow of $11.9 billion

2020 Expectations:

  • GAAP EPS of at least $10.57; Operating (non-GAAP) EPS of at least $13.35
  • Free cash flow of approximately $12.5 billion

ARMONK, N.Y.-- IBM today announced fourth-quarter and full-year 2019 earnings results.

"We ended 2019 on a strong note, returning to overall revenue growth in the quarter, led by accelerated cloud performance," said Ginni Rometty, IBM chairman, president and chief executive officer. "Looking ahead, this positions us for sustained revenue growth in 2020 as we continue to help our clients shift their mission-critical workloads to the hybrid cloud and scale their efforts to become a cognitive enterprise."

"In 2019, we continued to invest in the higher-value growth areas of the industry and took bold actions -- including several divestitures and a major acquisition -- to position our business, which are reflected in our strong gross margin performance," said James Kavanaugh, IBM senior vice president and chief financial officer. "After completing the acquisition of Red Hat, and with strong free cash flow and disciplined financial management, we significantly deleveraged in the second half."

Cash Flow and Balance Sheet

In the fourth quarter, the company generated net cash from operating activities of $3.5 billion, or $6.7 billion excluding Global Financing receivables. IBM’s free cash flow was $6.0 billion. IBM returned $1.4 billion to shareholders in dividends.

For the full year, the company generated net cash from operating activities of $14.8 billion, or $14.3 billion excluding Global Financing receivables, and full-year free cash flow of $11.9 billion. IBM returned $7.1 billion to shareholders through $5.7 billion in dividends and $1.4 billion of gross share repurchases.

IBM ended the fourth quarter with $9.0 billion of cash on hand which includes marketable securities. Debt, including Global Financing debt of $24.7 billion, totaled $62.9 billion – down $3.4 billion since the end of the third quarter, down $10.1 billion since the end of the second quarter.

Segment Results for Fourth Quarter

  • Cloud & Cognitive Software (includes Cloud & Data Platforms which includes Red Hat; Cognitive Applications; and Transaction Processing Platforms) -- revenues of $7.2 billion, up 8.7 percent (up 9.4 percent adjusting for currency), led by cloud, Security, and IoT; Cloud & Data Platforms, up 19 percent (up 20 percent adjusting for currency); Cognitive Applications, up 1 percent; Transaction Processing Platforms, up 3 percent (up 4 percent adjusting for currency).
  • Global Business Services (includes Consulting, Application Management and Global Process Services) -- revenues of $4.2 billion, down 0.6 percent (down 0.3 percent adjusting for currency), with growth in Consulting, up 4 percent.
  • Global Technology Services (_includes Infrastructure & Cloud Services and Technology Support Services) -- _revenues of $6.9 billion, down 4.8 percent (down 4.0 percent adjusting for currency).
  • Systems (includes Systems Hardware and Operating Systems Software) -- revenues of $3.0 billion, up 16.0 percent (up 16.5 percent adjusting for currency), led by IBM Z, up 62 percent (up 63 percent adjusting for currency); Storage Systems revenue grew 3 percent.
  • Global Financing (includes financing and used equipment sales) -- revenues of $301 million, down 25.3 percent (down 24.9 percent adjusting for currency); revenue reflects the wind-down of OEM commercial financing.

Full-Year 2019 Results

Full-year results reflect the impact of items related to the Red Hat acquisition closed in July 2019. Consolidated diluted earnings per share was $10.56 compared to $9.52 for 2018, up 11 percent year to year. Consolidated net income was $9.4 billion, up 8 percent year to year. Revenues for the full year totaled $77.1 billion, a decrease of 3.1 percent year to year (up 0.2 percent adjusting for divested businesses and currency) compared with $79.6 billion for the full-year 2018.

Operating (non-GAAP) diluted earnings per share from continuing operations was $12.81 compared with $13.81 per diluted share for the 2018 period, a decrease of 7 percent. Operating (non-GAAP) net income for the full year was $11.4 billion compared with $12.7 billion in the prior-year period, a decrease of 10 percent.

Full-Year 2020 Expectations

The company expects GAAP diluted earnings per share of at least $10.57, and operating (non-GAAP) diluted earnings per share of at least $13.35. Operating (non-GAAP) diluted earnings per share excludes $2.78 per share of charges for: amortization of purchased intangible assets and other acquisition-related charges, including pre-closing charges, such as financing costs; retirement-related charges; and tax reform enactment impacts. IBM expects free cash flow of approximately $12.5 billion.

IBM Corp. (NYSE: IBM)

— Mitch Wagner Visit my LinkedIn profileFollow me on Twitter Executive Editor, Light Reading

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