Coverage: IBM earnings beat, but revenue continues to drop

IBM Corp. stock rose after the company released better-than-expected earnings for the third quarter of the year on Tuesday.

Jordan Novet of CNBC.com had the news:

IBM came close to stopping the drought of revenue growth that lasted for 21 quarters, but didn’t manage to do that in the end. IBM revenue has now declined for 22 quarters in a row. Still, the stock went up more than 3 percent in after-hours trading shortly after the earnings beat. Subsequently, during the company’s call with financial analysts, IBM stock was trading 5 percent above the closing price of $146.54.

In terms of guidance, IBM expects to finish the calendar year with at least $13.80 in earnings per share, the company said in a statement. Analysts were expecting $13.75 in earnings per share for the entire year, according to Thomson Reuters.

IBM continues to look to its strategic imperatives — analytics, cloud, mobile and security — for growth that can counteract the decline of legacy parts of its business, and that segment delivered $8.8 billion in revenue, up 11 percent year over year. Almost 46 percent of all of the company’s revenue for the quarter came from its strategic imperatives, in fact. Cantor Fitzgerald analysts Joseph Foresi and Michael Reid had previously predicted strategic imperatives would contribute about 47 percent of Big Blue’s third-quarter revenue.

Becky Peterson of Business Insider reported that the quarterly revenue still beat expectations:

IBM benefitted from new and old businesses in the third quarter, as its cloud computing offerings as well as sales of its heavy-duty mainframe systems helped the company beat Wall Street revenue targets.

Shares of IBM were up nearly 5% in after hours trading on Tuesday, following the earnings release.

IBM’s overall revenue declined slightly on a year-over-year basis, marking the company’s 22nd consecutive quarter of declining revenue. But IBM appears to be growing where it counts, with revenue from “strategic imperatives” increasing 11%, thanks to cloud computing and software-as-a-service offerings.

Chris Laudani of TheStreet.com reported that the company reaffirmed its earnings guidance:

Although this was technically the 22^nd straight quarterly drop in revenue, sales fell just 0.4%. Cloud revenue jumped 20% to $1.4 billion, revenue from mobile was up 7% and security increased 51%.

IBM’s “Strategic Imperatives” revenue was up 12%, driven by cloud, mobile, security and analytics. Investors have been watching the Strategic Imperatives segment for signs that IBM could finally produce some revenue growth.

Management reaffirmed guidance for the rest of fiscal 2017. The company sees earnings of “at least” $13.80 per share vs. the consensus estimate of $13.75. Management expects a fourth-quarter tax rate between 12% and 18%.

Look, this wasn’t a speculator quarter, but it does seem IBM is headed in the right direction. I think the shares will pop higher driven by a relatively low valuation and a turnaround in the negative sentiment that surrounds the company.