Alex Barinka New York
IBM’s forecast for 2015 profit trailed some analysts’ estimates, as chief executive Ginni Rometty tries to return the company to growth as demand for services wanes and hardware sales continue to tumble.
It forecast operating earnings of $15.75 (R182) a share to $16.50 a share, according to slides in a regulatory filing. Analysts had projected $16.50 on average, and the estimates ranged from $15.17 to $18.55, according to Bloomberg data.
Forecast hits stock
This is the first time that Rometty has issued guidance that was not structured around the five-year profit goals put in place by her predecessor. In October, she abandoned an adjusted earnings forecast for 2015 of $20 a share and projected a decline in profit for last year, the first drop in more than a decade.
“Transitions are not easy,” said Daniel Ives, an analyst at FBR. “It’s like trying to turn around a cruise ship in a river. IBM is in a boat where they really need to focus on the next generation area of spending.”
The new forecast overshadowed fourth-quarter profit that beat analysts’ estimates as Rometty tries to transform IBM into a purveyor of cloud-computing software and services.
The shares initially rose after US markets closed and then began to tumble on news of the forecast. The stock was down as much as 4.1 percent to $150.56 in after-hours trading.
IBM’s new initiatives like cloud computing and data analytics have not been enough to make up for revenue lost in divestitures of low-margin business, falling sales for older software and services, and weak demand in emerging markets like China.
Rometty is taking more drastic measures to transform the 103-year-old company, like reorganising the business of more than 430 000 employees to put a more intense focus on the cloud. Fourth-quarter adjusted earnings, excluding some items, fell 6 percent from a year earlier to $5.81 a share as the company had focused on cutting costs, IBM said. Profit exceeded analysts’ estimates that had already been cut by 19 percent to $5.41 since it scrapped its forecasts in October.
Revenue from continuing operations fell for an 11th straight quarter, dropping 12 percent to $24.1bn. Analysts were expecting $24.8bn on average. Rometty has repeated the mantra that IBM is transforming itself. – Bloomberg