International Business Machines Corp. Reports a 3% Q1 Revenue Drop

By Anders Bylund Markets Fool.com

After the closing bell on Tuesday, IBM (NYSE: IBM) reported results for the first quarter of fiscal year 2017. Here's what you need to know.

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IBM's first-quarter results: The raw numbers

Metric

Q1 2017

Q1 2016

Year-Over-Year Change

Revenue

$18.2 billion

$18.7 billion

(2.8%)

Net income from continuing operations

$1.75 billion

$2.02 billion

(13%)

GAAP Earnings per share (diluted)

$1.85

$2.09

(11%)

Data source: IBM.

What happened with IBM this quarter?

Big Blue continued its long-running strategic makeover in the first quarter, making some confident moves to keep the process going in the face of shrinking sales and lower profits.

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  • Selling, general, and administrative costs took a 14% haircut compared with the year-ago period, but research and development spending increased by 5% instead.
  • IBM collected $1.09 billion in free cash flow, down from $2.32 billion a year ago. The company dipped into its savings coffers to help finance $1.3 billion each of dividend payments and share buybacks. Over the past four quarters, 88% of IBM's free cash flows have been funneled into the dividend and buyback budgets.
  • The cognitive-solutions segment reported 2% year-over-year sales growth and accounted for 22% of IBM's total revenues. That's up from 21% in the same quarter of 2016.
  • So-called strategic imperatives reported $7.8 billion in total sales. The 13% year-over-year boost was led by 35% higher cloud-service revenues.

The company updated its earnings expectations for fiscal 2017 but declined to make any changes this time.

  • Non-GAAP earnings guidance for the full year held steady, pointing to at least $13.80 per share.
  • The unadjusted full-year earnings targets also held steady, at a minimum of $11.95 per share.

Image source: IBM.

What management had to say

IBM CEO Ginni Rometty focused her prepared remarks on investments in future growth markets.

"We are developing and bringing to market emerging technologies such as blockchain and quantum, revolutionizing how enterprises will tackle complex business problems in the years ahead," she said.

Looking ahead

In general, IBM's bottom-line profits are expected to increase in the second half of the year along normal seasonality patterns. The reported results were in line with the very light sprinkle of official guidance Big Blue's management provided for this quarter. No big surprises here, in other words.

Market makers may have been hoping for something more, like the light at the end of this very long strategy-revamping tunnel. IBM now refers to itself as "a cognitive solutions and cloud platform company," but that moniker still applied to just 42% of total sales across the past four quarters. The stock took a 4% haircut in after-hours trading, slicing more than $6 billion off IBM's market cap.

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Anders Bylund owns shares of IBM. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.