International Business Machines Corp., the world’s largest provider of computing services, hasn’t convinced investors that it can pull out of a sales slump, leaving the stock poised for its first annual decline since the financial crisis in 2008.
Even as the company boosted its dividend and added about $20 billion to its buyback plan, the stock became the only loser in the Dow Jones Industrial Average this year. The shares dropped 2.7% through yesterday, compared with a 26% gain for the index.
Revenue has fallen for six straight quarters, dragged down by sluggish demand for computer hardware. That’s forced Chief Executive Officer Ginni Rometty to rely on job cuts, tax gains and asset sales to keep increasing earnings per share. Technology investors would prefer a company that’s growing, said Todd Lowenstein, a portfolio manager at HighMark Capital Management Inc.
“We don’t think investors are going to be paying up for financially engineered EPS,” said Lowenstein, who helps oversee $17 billion in assets. He no longer holds IBM shares. “In tech, most people want to see top-line growth, and IBM is just not part of that trend. IBM is part of the cluster of old tech companies considered dinosaurs of yesteryear.”
The technology giant, based in Armonk, New York, is coping with an industrywide transition into the cloud era, where information is stored online instead of onsite. While IBM is getting an increasing amount of revenue from cloud services, the shift has spawned a new crop of competitors and eroded demand for traditional hardware and services.
Still, the company remains on target to reach $20 in adjusted earnings per share in 2015, up from $15.25 last year. Cost reductions and a shift into more profitable businesses have helped maintain the growth.
Michael Fay, an IBM spokesman, declined to comment on the stock trading.
The company embarked on a restructuring program this year, cutting jobs globally. More than 3,300 workers were dismissed in the U.S. and Canada alone, according to Alliance@IBM, an employee group. Some U.S. contract workers also were ordered to lessen their hours, according to a memo obtained by Bloomberg.
In the third quarter, a more favorable tax rate contributed 30 cents a share to earnings, said David Grossman, an analyst with Stifel Nicolaus & Co., in a note at the time. That helped the company boost earnings to $3.99 a share, excluding some items -- 3 cents more than the average of estimates compiled by Bloomberg.