IBM's Q1 Earnings Beat Expectations, Stock Drops 7% on Tariff Concerns
1min read IBM, the technology giant, reported first-quarter earnings that exceeded market expectations, with revenue growing nearly 1% to $14.5 billion and adjusted earnings per share at $1.60. However, the company's stock price fell approximately 7% in after-hours trading, as investors remained concerned about the impact of tariffs and potential cost-cutting measures by the U.S. federal government on IBM's business.
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During the earnings call, IBM's CEO Arvind Krishna acknowledged the short-term uncertainties that could lead to a pause in customer transactions. However, he noted that the company had not yet observed any significant changes in customer purchasing behavior. Krishna also highlighted IBM's transformation from a traditional computing company to one focused on high-growth software and services, citing recent acquisitions such as HashiCorp Inc. and Apptio.
IBM's software business continued to be the fastest-growing segment, with first-quarter sales increasing 7% to $6.3 billion. The consulting division, however, saw a 2% decline in sales to $5.1 billion. The infrastructure segment also experienced a 6% decrease in sales to $2.9 billion. Despite these fluctuations, ibm maintained its full-year guidance, projecting at least a 5% increase in revenue and approximately $13.5 billion in free cash flow, calculated at constant currency rates.
IBM's Chief Financial Officer Jim Kavanaugh emphasized the resilience and durability of the company's business model. However, he acknowledged the impact of the U.S. government's cost-cutting initiatives, which have led to the cancellation or suspension of about 15 contracts with the federal government, totaling around $100 million in future payments. Kavanaugh reassured investors that federal government sales represent less than 5% of IBM's total revenue.
Looking ahead, IBM's management expressed caution regarding the consulting business, which they noted is more susceptible to business cancellations and measures related to the U.S. government's cost-cutting efforts. Despite these challenges, IBM provided a rare quarterly sales forecast, projecting second-quarter revenue between $16.4 billion and $16.8 billion, slightly above analysts' average estimate of $16.3 billion.
