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Why IBM Stock Dropped 6% Today

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

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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.

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