IBM’s Shares Fall by 5% on Fiscal 3Q15 Results



Higher-than-expected fall in revenue, weak earnings outlook weighed on IBM’s share price

In the prior part of this series, we discussed IBM’s (IBM) higher-than-expected fall in revenue. The company has also slashed its outlook for full fiscal 2015.

Though IBM has not provided revenue guidance for 4Q15, for full fiscal 2015, it expects full-year 2015 non-GAAP (generally accepted accounting principles) diluted EPS (earnings per share) to be in the range of $14.75–$15.75. IBM’s previous guidance for non-GAAP EPS was in the range of $15.75–$16.50.

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IBM expects free cash flow (or FCF) to be flat in fiscal 2015. In fiscal 3Q15, IBM reported free cash flow of $2.6 billion.

The company’s higher-than-expected fall in revenue and weak earnings outlook impacted investors as its shares fell more than 5% in after-hours trading on October 19, 2015. The share price chart above shows this.

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IBM’s share price has fallen by ~18% since fiscal 2Q15 results

A strong dollar as well as falling revenue in Brazil (EWZ), Russia (RSX), India, and China (or BRIC) growth markets impacted IBM’s revenue growth. BRIC markets reported a 30% fall in revenue in 3Q15. We’ll discuss them in detail in a later part of this series.

If we consider IBM’s share price movement since July 20, 2015, to date, its share price has fallen by approximately 18% to ~$141.85 in after-hours trading. On July 20, 2015, IBM declared its fiscal 2Q15 results, which exceeded earnings estimates but missed revenue estimates.

Commenting on IBM’s revenue degrowth trend, Daniel Ives, an FBR Capital Markets analyst, stated that all the major technology players such as Oracle (ORCL), IBM (IBM), Hewlett-Packard (HPQ), and Cisco (CSCO) are facing pressure to post revenue growth in a changing IT (information technology) landscape. The IT environment is currently being swept by the SMAC (social, mobile, analytics, and cloud) revolution.


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