Please ensure Javascript is enabled for purposes of website accessibility

Why IBM Stock Dropped 6% Today

By Rich Smith – Apr 21, 2020 at 10:51AM

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

But there's good news to tell here, too.

What happened

Shares of IBM (IBM 0.84%) are down big-time Tuesday -- 6% as of 11:15 a.m. EDT. And for a change, this is not (just) a coronavirus story.

It's an earnings story.

Glowing red stock chart arrow trending down

Image source: Getty Images.

So what

IBM reported its fiscal Q1 2020 earnings last night -- and believe it or not, despite today's share price plunge, IBM beat on earnings.  

Q1 sales were $17.6 billion, down 3% year over year and roughly in line with analysts' consensus targets, while "adjusted" earnings were $1.84 per share, a nickel ahead of Wall Street's prediction for $1.79.

As calculated according to generally accepted accounting principles (GAAP), though, IBM earned only $1.31 per share, which was down 26% in comparison to last year, reflecting "the impact of items related to the Red Hat acquisition closed in July 2019."

Nevertheless, a beat's a beat, and -- technically, at least -- IBM "beat" on earnings. So why is IBM stock down today?

Now what

The answer is guidance -- or rather the lack thereof. IBM, you see, kind of shot itself in the foot by following up news of its earnings beat by withdrawing its previous guidance for this full year's earnings "in light of the current COVID-19 crisis."

While hardly unexpected (tech companies have been citing coronavirus and withdrawing guidance right and left these past few weeks), IBM's announcement still came as a disappointment to investors. It was not without consolation, however.

During the quarter, IBM says it generated $1.4 billion in positive free cash flow, and the company's bank account looks flush with $11.2 billion in cash and equivalents. IBM also noted on a conference call with analysts that "we have ample free cash flow and liquidity to support our business and secure our dividend" and "we remain fully committed to our dividend."

Translation: Even if IBM stock is down, at least its 5.4% dividend should be safe.

Rich Smith has no position in any of the stocks mentioned. 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
$122.76 (0.84%) $1.02

*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 09/28/2022.

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.