IBM posts biggest annual sales increase in more than a decade, announces layoffs

International Business Machines Corp. increased sales more than 6% in 2022, the biggest sales increase for Big Blue in more than a decade, but its stock fell in extended trading Wednesday.

reported fourth-quarter earnings of $2.71 billion, or $3.13 a share, on revenue of $16.7 billion, in line with about $16.7 billion in the same quarter a year ago. After adjusting for acquisition- and retirement-related costs and other charges, IBM reported earnings of $3.60 a share, up from adjusted earnings of $3.35 a share in last year’s holiday quarter.

Analysts on average expected adjusted earnings of $3.59 a share on revenue of $16.15 billion, according to FactSet. Shares fell about 2% in after-hours trading after the release of the results, after closing with a 0.5% decline at $140.76.

The company also is reportedly laying off about 1.5% of its workforce, or about 3,900 employees.

For the full year, IBM posted adjusted earnings of $7.93 a share on sales of $60.53 billion, an increase from revenue of $57.35 billion a year ago, the largest percentage increase in annual sales since 2011. Revenue growth has been hard to come by for IBM — sales have increased year-over-year only once since increasing 7.1% in 2011, a 0.6% gain in 2018, according to FactSet records.

IBM was able to grow revenue largely because it posted its smallest sales total since 1987 last year, after it spun out its managed-infrastructure services business known as Kyndryl Holdings Inc.
in late 2021. After topping $60 billion in 2022 sales, IBM executives projected revenue growth in the mid-single digits in 2023 Wednesday.

Analysts on average are expecting revenue growth to continue and eventually accelerate. The average analyst estimate for 2023 calls for annual sales of $60.8 billion, according to FactSet, which would be growth of less than 1%. In 2024, though, analysts on average are projecting revenue of $63.38 billion.

“All three segments of IBM’s business face incremental headwinds in 2023,” Stifel analysts wrote in a preview of IBM’s earnings this week, explaining that the Red Hat software and consulting businesses will likely struggle for growth due to the current slowdown in business spending, while the infrastructure business is about to lap a mainframe refresh that led to healthier growth last year. Still, the analysts maintained a “buy” rating on the stock and increased their target price to $158 from $140.

IBM stock has outperformed the S&P 500 index
in the past 12 months, as well as the Dow Jones Industrial Average
which counts the company as one of its 30 components. IBM stock is up 3.3% in the past year, as the S&P 500 has declined 7.8% and the Dow has dropped 1.6%.

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