Computing giant IBM (NYSE:IBM) reported second-quarter results Wednesday evening. Big Blue posted modest year-over-year growth on many important metrics as strategic imperatives finally represented more than half of the company's overall revenues.

IBM's second quarter by the numbers


Q2 2018

Q2 2017

Year-Over-Year Change


$20.0 billion

$19.3 billion


Net income

$2.40 billion

$2.33 billion


GAAP earnings per diluted share




Data source: IBM.

If you're wondering how earnings per share managed to grow faster than the net income metric, it's all about share repurchases. IBM bought back and retired 20 million shares over the past four quarters, reducing the share count by 2.1% and boosting earnings per share by the same amount.

Over the same period, Big Blue boosted its quarterly dividend payouts by 4.7%. The company dug into its cash reserves to finance these cash returns to shareholders since the dividend and buyback budgets in the second quarter added up to 130% of IBM's free cash flows.

Predictable sales growth again

That 3.6% year-over-year revenue increase may not look like much, but it's actually part of an important trend. IBM has now reported positive revenue growth in each of the past three quarters, breaking a streak of negative or flat sales moves stretching all the way back to the fourth quarter of 2011.

IBM investors are applauding the newfound growth chops, which were built around the company's strategic imperatives. Revenue under that cross-divisional banner accounted for $10.1 billion out of IBM's $20 billion total in this quarter, marking the first time that these high-growth, high-margin operations stood for more than half of Big Blue's total business.

That mix of data analytics, mobile tools, cloud computing, digital security, and social technologies has been IBM's go-to strategy since CEO Ginni Rometty took the reins from predecessor Sam Palmisano at the start of 2012. This strategy shift involved letting go of a lot of IBM's slower-growing and less profitable legacy businesses. Six years later, the pain is finally being exchanged for some gains.

"We increased revenue, grew pre-tax income double digits, and expanded pre-tax income margins year to year, while continuing to invest in the business and return capital to shareholders," said CFO Jim Kavanaugh in a prepared statement. "Our performance this quarter underscores the extent to which we have repositioned our business over the last several years."

A black System Z mainframe system against a stark white background.

A modern System Z mainframe. Image source: IBM.

The fuel for IBM's growth engines

Breaking IBM's results down in other ways, sales were roughly flat year over year in the Americas and the Asia-Pacific region. Europe, the Middle East, and Africa delivered 4% revenue growth, led by strong results in large Western European markets such as France, Germany, and the U.K.

From a business segment perspective, three of IBM's four technology divisions saw flat or slightly negative sales in this report. The outlier this time was the systems segment, where the recently launched lineup of new System Z mainframe servers continued to deliver strong year-over-year growth. This segment reported 23% higher sales, led by a 31% increase in hardware revenue and more than double the year-ago period's System Z sales.

Looking ahead, IBM essentially reiterated its full-year financial guidance, which calls for GAAP earnings of at least $11.60 per diluted share. Adjusted earnings should land above $13.80 per share, and the fiscal year is shaping up for approximately $12 billion of free cash flow. The only change among these targets was a $0.02 increase in the GAAP earnings ambition.