In-line earnings
Big Blue shows;
Margins solid, sales move slow

That's a very simple "name poem" in honor of National Poetry Month, and the fact that IBM (NYSE:IBM), which needs no introduction, released first-quarter earnings Tuesday night for the period ending March 31.

  • The company's stated long-term goal is annual EPS growth of 10%-12%, so these results clock in at the top of internal expectations. Margins were stable enough across the board, and the generous share buyback program pushed the return over the targeted edge.
  • The operating cash flow excludes receivables for the Global Financing operations, as that's more of an income-generating $2.4 billion investment balance than working capital.
  • As much as Oracle (NASDAQ:ORCL) and SAP AG (NYSE:SAP) like to mention their successes in competing with IBM, Big Blue preferred to state that WebSphere is gaining share in the middleware space, and leave it at that. Call it confidence or call it arrogance, salt to taste, serve with coleslaw and a frosty cup of lemonade.

(Figures in millions, except per-share data)

Income Statement Highlights

Q1 2007

Q1 2006

Change

Sales

$22,029

$20,659

6.6%

Net Profit

$1,844

$1,708

8%

EPS

$1.21

$1.08

12%

Diluted Shares

1522.8

1587.2

(4.1%)

Get back to basics with the income statement.

Margin Checkup

Q1 2007

Q1 2006

Change*

Gross Margin

40.3%

39.2%

1.1

Operating Margin

11.7%

11.8%

(0.1)

Net Margin

8.4%

8.3%

0.1

*Expressed in percentage points.

Margins are the earnings engine.

Balance Sheet Highlights

Assets

Q1 2007

Q1 2006

Change

Cash + ST Invest.

$10,781

$12,302

(12.4%)

Accounts Rec.

$31,665

$29,281

8.1%

Liabilities

Q1 2007

Q1 2006

Change

Accounts Payable

$27,102

$26,108

3.8%

Long-Term Debt

$14,285

$15,325

(6.8%)

The balance sheet reflects the company's health.

Cash Flow Highlights

Q1 2007

Q1 2006

Change

Cash From Ops.

$950

$710

33.8%

Capital Expenditures

$1,100

$950

15.8%

Free Cash Flow

($150)

($240)

37.5%

Cash flow information taken from the earnings conference call.

Free cash flow is a Fool's best friend.

Related Foolishness:

Have you checked out our Motley Fool CAPS investor community yet? 27,000 of your fellow investors are standing by to help you understand the market better -- and to learn from your experiences, too. It's fun, it's free, and your portfolio will thank you later.

Fool by Numbers is designed to give you the raw earnings information in a timely fashion, putting all the numbers you need in one easy-to-read place. But at The Motley Fool, we believe numbers tell only part of the story, so check Fool.com for more of our in-depth discussion of what the numbers mean.

At the time of publication, Anders Bylund had no position in any company mentioned. Fool rules are here.