IBM Credits Cloud, AI And Industry Expertise For Second Consecutive Quarter Of Growth

IBM's focus on transforming its portfolio to help customers embrace cloud services and artificial intelligence buoyed first-quarter financials, CFO James Kavanaugh said Tuesday during the technology stalwart's earnings call.

Kavanaugh attributed increases in revenue and earnings per share to the company's long-term strategy of pairing those advanced technologies—key components of its strategic imperatives—with industry expertise.

But a disappointing result in the systems business due to declining storage sales led Big Blue to not raise guidance for the rest of the year as analysts had predicted it would, dragging the stock down 6 percent in after-hours trading.

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"We've been building and transforming our portfolio, our skills, our operating model, to address what our enterprise clients need and what they value," Kavanaugh said.

That's integrating technologies and delivering industry expertise to drive adoption of artificial intelligence and cloud, he said.

Total first-quarter revenue came in at $19.1 billion, growing 5 percent year over year (although flat when adjusted for currency fluctuations) for the quarter that ended March 31. That beat analyst projections of $18.84 billion, according to Thomson Reuters.

Over the last 12 months, revenue from the Armonk, N.Y.-based company's declared strategic imperatives of cloud, analytics, mobile, social and security came in at $37.7 billion—12 percent higher than the previous year.

Those next-generation technologies actually saw a slight decline as an overall share of total sales, from 49 percent in the fourth quarter of the last fiscal year to 47 percent in first quarter of 2018.

Cloud revenue of $17.7 billion in the last 12 months was up 20 percent.

Cognitive solutions delivered $4.3 billion in revenue in the first quarter, growing 2 percent year over year after being flat in the previous quarter.

Resuming top-line growth was extremely important, Kavanaugh said, because of the strong margins in the cognitive business. He told investors to expect that trajectory to continue.

Solutions software, led by analytics and security, also grew 2 percent in the quarter.

IBM has added offerings better enabling clients to manage their data across hybrid cloud environments, and Big Blue has built out an extensive security portfolio that's enhanced by artificial intelligence, delivering a "value approach to protection of data and privacy," Kavanaugh said.

"There is obviously a lot of demand here, given the importance of cybersecurity risks and data privacy concerns," he said.

Earnings per share of $2.45 per share exceeded analyst expectations by 3 cents.

Despite coming out on the higher end of the projections delivered at the close of the last fiscal year, the guidance pulled down the stock.

The weak storage sales at the root of those disappointing figures resulted from a failure to execute transactions at the end of the quarter, Kavanaugh said. He reassured investors that IBM maintains confidence in that unit and expects to see a rebound.

The Global Business Services division through which IBM offers consulting services grew by 4 percent in the first quarter to $4.2 billion, and actually declined by 1 percentage point with currency adjustments.

But a bright note was the cloud consulting practice within Global Business Services saw double-digit growth in analytics and mobile.

[Global Business Services] is uniquely positioned to bring together IBM's first-mover advantage in the most promising emerging technologies, like blockchain," he said.

"We took actions to further align our skills to these high-value areas," Kavanaugh said. That business expanded margins "while successfully delivering innovation" in support of clients evolving needs, he added.

The quarter was IBM's second in a row that saw revenue growth after five years of consecutive decline.

IBM stock closed Tuesday at $160.91 per share. The stock plateaued around $152 almost immediately after the financials were disclosed.