International Business Machines Corp. (NYSE:IBM), the largest computer-services company, raised its annual forecast after second-quarter earnings topped analysts’ estimates, lifted by cost cuts and share buybacks.
Excluding a $1 billion restructuring expense, profit was $3.91 a share last quarter, the Armonk, New York-based company said yesterday in a statement. That beat the $3.78 that analysts projected on average, according to data compiled by Bloomberg. IBM now expects to earn at least $16.90 a share in 2013, up from the $16.70 it forecast earlier this year.
IBM has managed to increase profit by shifting away from low-margin businesses, cutting jobs and repurchasing stock -- even as revenue declines. The company is betting that faster- growing areas such as cloud computing and data analysis can offset a broader slowdown in information-technology spending.
“We have to take them at their word that they’re going to see some productivity improvements due to the workforce changes, and some strength in software and services,” said Josh Olson, an analyst with Edward Jones & Co. in Des Peres, Missouri. “They’re getting a benefit from software growing at a faster pace than the other businesses, and that’s contributing to the profit beat.”
The shares climbed 2% to $198.34 at 10:04 a.m. in New York. The stock was up 1.6% this year through yesterday, trailing an 18% gain for the Standard & Poor’s 500 Index.
By beating earnings estimates, IBM rebounds from a rare stumble in the previous quarter, when its profit missed projections for the first time in eight years. Even so, revenue continued to decline, falling 3.3% to $24.9 billion from a year earlier. Analysts had expected $25.3 billion. Sales declined in every IBM business division other than software.
In addition to a slump in demand, currency changes took a toll on IBM’s results last quarter. In Japan, where the company made about 10% of its sales last year, the yen fell 5% versus the dollar in the second quarter. The company was “significantly impacted” by the yen’s weakness, Chief Financial Officer Mark Loughridge said on a conference call.
“Because our business in Japan is more heavily skewed to local services, we have less ability to hedge cross-border cash flows as compared to most other countries,” Loughridge said.