International Business Machines Corp. Delivers a Mixed Q1 Amid Heavy Headwinds

By Markets Fool.com

IBM just reported results for the first quarter of fiscal year 2015. It was a mixed quarter in spite of heavy currency-related headwinds.

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Analysts were expecting IBM to report adjusted earnings of about $2.82 per share on first-quarter sales of $19.7 billion. Against that backdrop, earnings rose 9% year-over-year to land at $2.91 per share. Excluding the effects of currency translation and divested business units, revenues held steady at $19.6 billion.

IBM's Q1 sales growth by geography, with pie slices representing the size of each market. Source: IBM.

The strengthening dollar was always going to be a problem for IBM, but currency effects exceeded every forecast and update that IBM had provided to its investors. In the end, business unit sales reduced IBM's revenue by 4% while currency exchange headwinds caused an 8% slowdown.

From a geographic point of view, adjusted sales increased 2% year over year in the Americas but declined by 2% in the rest of the world. A strong turn of services and hardware sales in Japan was obscured by weakness in the rest of the Asia Pacific market.

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In terms of operating segments, Every division except for systems hardware saw sales decline by single-digit percentage points. The hardware business jumped 30% higher.

Keep in mind that these rates don't account for business divestitures. The fast-growing hardware business at IBM is a dramatically downsized unit, mainly focused on System z mainframe systems. That product line got a dramatic overhaul in January, and mainframe sales more than doubled as a result.

IBM provided non-GAAP profit margins, adjusted to account for business sales but not for currency effects. In that light, gross margins rose from 48.5% in the year-ago quarter to 49.3% in the current period. Operating margins rose from 15.8% to 18.4%, reflecting a richer mix of products and services.

IBM CEO Ginni Rometty. Source: IBM.

Looking ahead, IBM reiterated its full-year non-GAAP earnings guidance, centered around $16.12 per share.

"We had a strong start to the year," said IBM CEO Ginni Rometty in a prepared statement. "Our strategic imperatives growth rate accelerated, demonstrating the power of our offerings in these new opportunities and contributing to improved revenue performance. Our focus on higher value through portfolio transformation and investment in key areas of the business drove continued margin expansion."

The article International Business Machines Corp. Delivers a Mixed Q1 Amid Heavy Headwinds originally appeared on Fool.com.

Anders Bylund owns shares of International Business Machines. The Motley Fool also owns shares of International Business Machines. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.