IBM Profit Rises 3.1% in 1st Quarter; Results Below Most Forecasts
International Business Machines said Friday that its first-quarter profit rose 3.1%, a showing that exceeded only the most bearish of analysts’ forecasts.
The computer maker, which has been waving a caution flag for months, said its net income for the three months ended March 31 was almost $1.02 billion. That compares to $986 million for the first quarter of 1985.
Although many analysts had lowered their estimates of IBM’s per-share earnings--some in late February and others earlier this week--the $1.65-a-share profit reported Friday was still a disappointment to many. Estimates had ranged from about $1.45 to $2.05 a share.
IBM’s stock had been buffeted in the past two months as investors reacted to the parsimonious estimates, and the actual numbers Friday did little damage. It was the fourth most actively traded issue Friday on the New York Stock Exchange but closed down only 50 cents at $149.75 in composite trading.
‘Uncertain Economy’
The slightly higher earnings came on a 3.7% increase in revenue to $10.1 billion. However, the company said, favorable currency rates improved earnings by $140 million and revenue by $915 million.
The results “reflect an uncertain North American economy and slow growth in capital spending,” said John F. Akers, IBM president and chief executive. Akers said that although international sales remained good, “the unusually strong level of non-U.S. shipments last year results in a difficult quarterly comparison.”
“Our approach to 1986 continues to be one of caution, especially with regard to North America,” Akers’ statement continued.
Analysts continue to express concern over sales, which have not picked up as quickly as hoped from the depressed levels of last year. IBM has been paring costs but will need a sales burst, analysts said, to reach the 15% annual growth rate that Wall Street is expecting for 1986.
“It looks like the (computer) hardware purchase business is relatively flat, year to year,” said John Dean, a technology analyst with Montgomery Securities in San Francisco. “So this is a neutral announcement, but that’s good, almost, at this point in the year, since the year is so tough.”
Revenue Lower Than Expected
At the Gartner Group in Stamford, Conn., an investment banking firm that usually takes a more conservative view of IBM than other securities analysts, Stephen Cohen said the quarterly earnings came in “about where we had been expecting. . . . But what we have been focusing on is the revenues. We had been expecting $10.5 billion, and they came in below that.”
Cohen said that “the best indication that this was a weak quarter” was the fact that although dollar amounts of IBM shipments increased, shipment volume was actually down worldwide.
Other computer makers are having difficulties increasing sales this year and have been relying on the benefits of last year’s cost-cutting programs to improve profit margins. Digital Equipment, the second-largest computer maker, is expected to show better sales gains than IBM when it reports its quarterly results next week.
