IBM's 2Q Net Sinks 17% as Global Growth Slows; FY Outlook Raised

IBM (NYSE:IBM) disclosed a 17% drop in second-quarter profits on Wednesday amid slowing global growth, but the blue-chip company’s adjusted earnings topped views and management raised its full-year outlook.

Previously-slumping shares of Big Blue rallied in extended trading as Wall Street overlooked the company’s sales miss and focused on the rosier outlook.

IBM said it earned $3.2 billion, or $2.91 a share, last quarter, compared with a profit of $3.9 billion, or $3.34 a share, a year earlier.

Excluding one-time items, it earned $3.91 a share, up 8% from the year before and above consensus calls from analysts for $3.77.

Revenue dipped 3% to $24.9 billion, trailing the Street’s view of $25.37 billion. Gross margins expanded to 48.7% from 47.7%.

“In the second quarter, we delivered strong performance in our higher-value software and mainframe businesses and again significantly increased our services backlog on growth in new business," IBM CEO Ginni Rometty said in a statement.

IBM’s results underscore the slowdown in growth around the world.

Americas sales fell 3% to $10.7 billion and revenue in Europe, the Middle East and Africa flatlined at $7.8 billion. IBM said its Asia-Pacific revenue slumped 8% to $5.8 billion. Revenue in Brazil, Russia, India and China, the so-called BRIC countries, was unchanged.

Still, management raised its full-year non-GAAP EPS view by 20 cents to $16.90, which would top estimates of $16.63.

Digging into IBM's quarterly numbers, the company said its global technology services sales slid 5% to $9.5 billion, while its estimated services backlog stood at $141 billion, up 3% year-over-year.

Software revenue rose 4% to $6.4 billion as key middleware products sales jumped 9% to $4.3 billion. On the hardware front, revenue declined 12% to $3.8 billion

Shares of Armonk, N.Y.-based IBM rose 2.21% to $198.85 in extended trading on Wednesday.

IBM has struggled badly to keep up with the broader markets, rising just 1.5% so far this year, compared with almost 18% for the S&P 500 and 16% for the Nasdaq 100.

IBM suffered a 9.2% pullback in June and a 11.4% slump during the second quarter, making it the worst Dow Industrial performer in those periods.

Earlier this month, Goldman Sachs (NYSE:GS) removed IBM from its Americas Buy List, citing concerns about potential earnings turbulence amid slowing growth in emerging markets.