Tuesday night, information giant IBM
What analysts say:
- Buy, sell, or waffle? Twenty-two analysts follow IBM on Wall Street. Twelve of them carry a buy recommendation, eight say hold, and the last two tell us to sell. In the Motley Fool CAPS service, 28 of our all-stars are bullish, with only six dissenters.
- Revenues. The average analyst expects sales around $22.1 billion this quarter, up 2.6% over the previous year.
- Earnings. On the bottom line, analysts have cast their bones and come up with a $1.35 target for earnings per share, up from $1.26 a year ago.
What management says:
CFO Mark Loughridge says that IBM aims to "drive earnings per share growth through a combination of revenue growth, productivity, and effective use of cash." To that end, the company has worked to cut costs throughout its operations lately, and now considers the "competitive cost structure and increased pricing flexibility" embedded in its business model.
What management does:
Wow, those margins are going through the roof! Well, not so fast. The underlying numbers tell a different story. Revenues have consistently underperformed the previous year lately, and the growth in gross profits has nearly flatlined. It's fallout from the sale of all personal computer systems to Chinese system builder Lenovo. But things are indeed looking good where it matters, at the bottom of the income statement. Management is clearly squeezing blood from a stone here, and running an ever-tighter ship. But there's work left to do on that revenue-growth goal mentioned earlier.
|
Margins % |
3/05 |
6/05 |
9/05 |
12/05 |
3/06 |
6/06 |
|---|---|---|---|---|---|---|
|
Gross |
37.1 |
37.9 |
38.9 |
40.1 |
40.9 |
41.3 |
|
Op. |
10.9 |
11.0 |
11.6 |
12.2 |
12.5 |
12.9 |
|
Net |
7.7 |
7.9 |
8.0 |
8.7 |
9.3 |
9.5 |
|
Year-over-year growth (%) |
3/05 |
6/05 |
9/05 |
12/05 |
3/06 |
6/06 |
|---|---|---|---|---|---|---|
|
Revenue |
6.3 |
3.8 |
(0.2) |
(5.4) |
(8.4) |
(8.0) |
|
Gross Profit |
7.0 |
7.0 |
5.4 |
2.7 |
0.9 |
0.2 |
|
Operational Profit |
(9.7) |
(9.6) |
(5.2) |
6.5 |
5.6 |
7.8 |
|
Net Profit |
(0.6) |
0.3 |
2.9 |
6.1 |
9.6 |
10.8 |
One Fool says:
This will be the first full quarter reported with the Lenovo sale no longer factoring into previous-year comparisons, yet the forecast calls for very weak sales growth -- lower than the 3.3% of inflation. What gives?
According to management, it's being picky about what deals to sign. IBM is willing to leave a contract on the table if it would put pressure on margins and profitability, which explains some of the operational improvement and the slow revenue growth in one fell swoop. I'm happy to trade some sales for better income any day of the week, so that's fine with me.
Still, I can't help but get a bit exasperated at the slow going here. IBM is a leader in many markets, such as mainframes and supercomputers, business software, and support services. it's also one of the very few companies I think would do well to take NetWare off Novell's
As for Tuesday night's numbers, the company has a history of outperforming expectations to some degree. I'm looking for income closer to $1.40 per share, based on that history and on general market strength over the past couple of months.
Competitors:
-
Accenture
(NYSE:ACN) -
Hewlett-Packard
(NYSE:HPQ) -
3Com
(NASDAQ:COMS) -
General Electric
(NYSE:GE) -
Hitachi
(NYSE:HIT)
Accenture is one of Philip Durell's picks for Motley Fool Inside Value. To see how his picks are beating the market, take a free trial and look at the back issues and all the picks.
Fool contributor Anders Bylund holds no position in any of the companies discussed here. You can check out Anders' holdingsif you like, and Foolishdisclosureis not just a good idea -- it's the law around here.
