International Business Machine (NYSE: IBM) – Q1 FY 2011 Earnings Preview
Tuesday, April 12, 2022 10:30 AM

A leading technology firm, International Business Machine (NYSE: IBM) is expected to report its first quarter FY 2011earnings on April 19, 2011. For the previous four quarters ended December 2010, IBM’s reported earnings has beaten analysts’ consensus estimates by margins in the range of 1.2 percent and 2.5 percent.

IBM is a leading global technology firm that offers variety of products in the information technology industry. The company's major operations consist of five business segments: Global Technology Services, Global Business Services, Software, Systems and Technology and Global Financing. Currently IBM is taking a strong hold in the cloud computing sector around the world, with a latest contract with Indian Government in order to help millions of people to find work using their mobile devices.

On March 22, 2011, IBM also announced a definitive agreement to acquire privately-held TRIRIGA, Inc., a Las Vegas, Nevada-based provider of facility and real estate management software solutions. The move aims to accelerate IBM's smarter buildings initiatives. Financial terms were not disclosed. TRIRIGA software helps clients make strategic decisions regarding space usage, evaluate alternative real estate initiatives, generate higher returns from capital projects, and assess environmental impact investments.

For the previous quarter ended December 2010, IBM reported record revenue of $29 billion, up 7 percent year-over-year. The earnings for the quarter were $7 billion, up 9 percent or $4.18 per diluted share, up 16 percent compared to prior year same quarter. For full year FY 2010, Net income was $14.8 billion compared with $13.4 billion a year earlier, an increase of 10 percent. Diluted earnings were $11.52 per share compared with $10.01 per diluted share in 2009, an increase of 15 percent, and the 8th consecutive year of double-digit EPS growth. Revenues for 2010 totaled $99.9 billion, an increase of 4 percent.

According to data released by IBM, revenues from the growth markets increased 15 percent (13 percent, adjusting for currency). While, revenues in the BRIC countries — Brazil, Russia, India and China — increased 19 percent (17 percent, adjusting for currency), and a total of 50 growth market countries had double-digit revenue growth. For the full year, growth markets revenue represents 21 percent of IBM’s total geographic revenue. The growth of IBM in these markets is expected to be faster than the developed markets, increasing the percentage share in IBM’s total geographic revenue.

IBM expects to report better earnings for FY 2011, and believes that it is on track for its goal of $20 per share by FY 2015. For FY 2011, IBM expects GAAP earnings per share of at least $12.56; and operating earnings per share of at least $13.00. The 2011 operating earnings exclude $0.44 per share for the amortization of purchased intangible assets, other acquisition-related charges and certain retirement-related costs that the company has defined as non-operating.

During the first quarter of current fiscal, IBM’s board of directors declared a regular quarterly cash dividend of $0.65 per common share, payable March 10 to stockholders of record February 10. With the payment of the March 10 dividend, IBM will have paid consecutive quarterly dividends every year since 1916.

For the first quarter, analysts’ EPS estimates range from a low of $2.19 to $2.37 per share, with a consensus estimate of $2.30 per share. IBM earned $1.97 in the year ago quarter. For this quarter, analysts’ revenue estimates range from a low of $23.41 billion to a high of $24.40 billion, the consensus estimate of $23.98 billion is slightly higher than the revenues of $22.86 billion in the same quarter a year ago. For the quarter ending March 31, 2011, the consensus EPS forecast has been increased from $2.23 per share estimated 90 days ago, to the current estimate of $2.30 per share.

In the last 52 weeks, IBM’s shares have been trading in the range of $116 and $167.72. IBM is currently trading near the top of the range.  

Based on the last year’s performance and the growth the company has been able to achieve in the growth markets, I estimate FY 2011 EPS at $13.25 per share and for FY 2012 at $14.75 per share. I asso set a one year target price of $175 a share.