Please ensure Javascript is enabled for purposes of website accessibility

Dow Jones News: IBM Pulls Guidance; Coca-Cola Sees Plunging Volumes

By Timothy Green – Updated Apr 21, 2020 at 1:30PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

IBM is seeing a pause from clients due to uncertainty, and restaurant restrictions are hurting Coke's sales.

The Dow Jones Industrial Average (^DJI -1.71%) was down 2.3% at 11:10 a.m. EDT Tuesday. Plunging oil prices may be partly to blame. A new relief deal worth more than $450 billion, including around $300 billion for small-business payroll loans, is expected to be voted on in the Senate today, but the market failed to rally on the news.

Dragging down the Dow on Tuesday was IBM (IBM -2.32%), which reported mixed first-quarter results and pulled its full-year guidance, prompting a steep sell-off in the stock. Meanwhile, shares of Coca-Cola (KO -0.97%) were down slightly after the company beat expectations for the first quarter but disclosed a sharp drop in sales volume in April.

IBM reports revenue decline, pulls guidance

IBM's results were mixed for the first quarter, which ended in March. Revenue was down 3.4% year over year to $17.6 billion, missing analyst expectations slightly, but it was up 0.1% when adjusting for currency and divested businesses. Adjusted earnings per share were down 18% to $1.84, beating the average analyst estimate by $0.04.

The IBM logo on a building.

Image source: IBM.

IBM's revenue and earnings were dragged down by revenue recognition rules related to the acquisition of Red Hat. While Red Hat generated $1.07 billion of revenue on a stand-alone basis, up 18% year over year, IBM was only able to recognize $719 million of that revenue, even as all of Red Hat's costs flowed through to the income statement. This gap will narrow as the year progresses.

Given the uncertainty created by the pandemic, the tech giant withdrew its full-year guidance. During the earnings call, CFO James Kavanaugh said: "... [T]here was effectively a pause as clients understandably dealt with their most pressing needs. This was most pronounced in our software business, where the vast majority of transactions typically closed in the last two weeks of the quarter."

While IBM's results will take a hit from the pandemic, the company emphasized the stability of its business model. It said that a majority of its revenue comes from clients in financial services, the public sector, and the telecom industry, and that approximately 60% of its revenue is recurring.

IBM remains committed to paying its dividend despite the disruption from the pandemic. The company has raised its dividend annually for 24 years in a row, and it will become a Dividend Aristocrat if it can muster another increase this year. Typically, IBM announces dividend bumps in April.

IBM's return to growth, driven by Red Hat and a recently launched mainframe, is being disrupted by the pandemic. Investors weren't thrilled with the company's results, pushing the stock down 5.8% in the morning.

Coca-Cola sees major volume declines

Coca-Cola's first quarter was minimally affected by the pandemic. Total revenue was down 1% to $8.6 billion, and adjusted EPS jumped 8% to $0.51. Those numbers beat analyst expectations by $280 million and $0.07, respectively.

The second quarter will be a different story. Coca-Cola saw significant changes in consumer purchase patterns in markets around the world starting in March as social distancing measures were put into place. The away-from-home channels were the hardest hit, not surprising given than many restaurants are operating without a dine-in option. In at-home channels, Coca-Cola saw an initial surge in demand as consumers stocked up in certain markets, followed by a return to more normalized demand levels.

Since the beginning of April, Coca-Cola's total sales volume has declined by about 25% globally, almost entirely due to weakness in the away-from-home channels. The company is unable to provide any guidance for the second quarter or the full year, since its results will depend heavily on the duration of social distancing and the speed of the economic recovery that will follow.

Coca-Cola sees these issues as temporary, and it expects its results to improve in the second half of 2020. Investors largely ignored the headwinds facing the company, with the stock down just 1% by late morning.

Timothy Green owns shares of IBM. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

International Business Machines Corporation Stock Quote
International Business Machines Corporation
$118.81 (-2.32%) $-2.82
The Coca-Cola Company Stock Quote
The Coca-Cola Company
$56.02 (-0.97%) $0.55
Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
$28,725.51 (-1.71%) $-500.10

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/01/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.