IBM, Microsoft Report Strong Gains, Boosting Tech Outlook
International Business Machines Corp. and Microsoft Corp. pleasantly surprised Wall Street on Thursday, reporting stronger-than-expected quarterly earnings that gave a more positive tone to the outlook for the technology sector.
The report of a 42% gain by IBM, along with strong earnings news from Caterpillar Inc., helped fuel a rally in blue-chip stocks, with the Dow Jones industrial average gaining 57.45 points to close at 5,124.35. IBM’s stock rose $8.625 to $96.25, a 9.8% surge, on the New York Stock Exchange. The gains in IBM and Caterpillar accounted for about 42 points of the Dow’s rise.
However, the jump in IBM shares failed to produce a broad rally in technology stocks. Tech companies that recently reported disappointing earnings, such as Apple Computer Inc., continued to slide.
IBM’s strong earnings, part of an overall comeback for the giant, may continue to help it regain its role as a bellwether for technology and blue-chip companies.
Although IBM said it will be hard to duplicate its 1995 growth this year, most of its operations are performing well. IBM executives said laptop personal computers, minicomputers and data-storage systems are targets for improvement.
Its services business, which includes consulting and running complex data centers for companies, continued to be its fastest-growing and passed software to become IBM’s second-largest operation, after hardware.
Armonk, N.Y.-based IBM earned $1.7 billion, or $3.09 a share, in the quarter ended Dec. 31. It earned $1.2 billion, or $2.06 a share, in the same period of 1994. IBM took a $663-million pretax charge in the quarter, which included the expense of about 1,200 job cuts, and a $37-million charge to reflect the reduced value of some software. The charges were offset somewhat by a pretax gain of $175 million related to a 1994 subsidiary sale.
Without the charges, IBM would have earned $2 billion, or $3.66 a share. Wall Street analysts had forecast a profit of $3.63 a share, excluding the charges.
Microsoft posted a 54% gain in its second fiscal quarter ended Dec. 31, lifted by strong sales of Windows 95, the new version of its program for operating the basic functions of a personal computer.
A shift occurred during the quarter in the predominant way in which Windows 95 was sold. More versions were sold pre-installed on new PCs by manufacturers in the period. In the previous quarter, the first for the product, sales of Windows 95 were led by versions in stores, bought chiefly by people who already owned PCs.
Microsoft’s profit was a record $575 million, or 90 cents a share, versus net of $374 million, or 60 cents a share, a year earlier. The company’s profit was boosted by a one-time net gain of 3 cents a share from the sale of long-term assets. Wall Street analysts had forecast a profit of about 84 cents.
Microsoft’s stock rose $2.75 to $87.625 on the Nasdaq on Thursday. The Redmond, Wash.-based company did not announce results until after the market closed.
Peoria, Ill.-based Caterpillar reported slightly higher profit for the fourth quarter as sales rose, despite company predictions of an industry slowdown and a recently ended strike by 8,900 factory workers. The heavy-equipment maker earned $300 million, or $1.53 a share, for the three months ended Dec. 31, compared with $279 million, or $1.38 a share, in the same period a year ago.
The unexpectedly high profit, which set a fourth-quarter record, spurred a sharp rise in the company’s shares in heavy trading. Caterpillar shares closed at $59.25, up $5 in trading of 4.33 million shares, more than five times their three-month daily average.
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Pacific Telesis Group said its fourth-quarter profit fell 12% on lower sales and a loss of market share to competitors in the California local phone market. Net income fell to $231 million, or 54 cents a share, from $262 million, or 62 cents, a year earlier. Results were a penny less than the average earnings estimate of 55 cents a share, based on a survey of 17 analysts by Zacks Investment Research.
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General Electric Co. said fourth-quarter earnings rose 11%, paced by double-digit increases in operating profit at its financial services, plastics and NBC broadcasting units. The conglomerate earned $1.87 billion, or $1.12 a share, in the quarter ended in December, up from $768 million, or 45 cents a share, in the same period of 1994. The dramatic increase resulted because of the December 1994 sale of Kidder, Peabody Group Inc., a Wall Street firm that recorded a $917-million loss in the fourth quarter of 1994.
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Chatsworth-based Great Western Financial Corp. said its fourth-quarter profit rose 67%, spurred by higher revenue from real estate loans and its investments in mortgage-backed securities. The second-biggest U.S. thrift said net income rose to $98.6 million, or 67 cents a share, compared with profit from operations of $59.0 million, or 39 cents, a year earlier. The latest quarter’s earnings easily beat the average forecast of 50 cents a share in a Zacks Investment Research survey of 10 analysts.
Beverly Hills-based City National Corp., parent of City National Bank, reported a 35% surge in fourth-quarter earnings compared with a year earlier, fueled by loan growth and continued improvements in credit quality. The bank logged net income of $13.3 million, or 29 cents a share, compared with $9.9 million, 21 cents a share, in the corresponding period of 1994.
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St. Louis-based McDonnell Douglas Corp. posted a 13% gain in fourth-quarter earnings before a $1.12-billion charge for its commercial jet business that resulted in a final loss. For the quarter ended Dec. 31, the company lost $8.35 a share. Net earnings were $187 million, or $1.68 a share. During the same period in 1994, the company recorded a $165-million profit, or $1.39 a share.
At a Glance:
Eastman Kodak Co. earned 80 cents a share on revenue of $4.19 billion in the fourth quarter. A year ago, after setting aside $587 million to cover layoffs and reduce debt, it earned $18 million, or 5 cents a share, on sales of $3.9 billion. . . . Raytheon Co., citing improvement in its commercial businesses, reported profit from operations for the quarter of $217.1 million, or 90 cents a share, compared with net income of $205.7 million, or 80 cents, a year earlier. . . . Northwest Airlines Corp. said its fourth-quarter earnings rose 49%, helped by a $49.9-million refinancing gain. Net income rose to $53.5 million, or 41 cents a share, from $35.9 million, 23 cents, a year earlier.
* BLUE-CHIP GAINS
Dow soars 57 points, sparked by strong earnings reports. D2
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Divergent Paths
Since Jan. 9, this year’s worst day for technology stocks, widely different earnings predictions and reports have sent several issues packing while helping others recover.
Tech losers
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Stock 7-day Thursday change close Apple -$0.80 $31.94 Compaq -1.00 44.88 Dell -9.00 24.50 Micron Tech. -3.50 32.00 Intel -4.00 51.00 Quarterdeck -5.40 15.80
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Tech Gainers
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Stock 7-day Thursday change close Computer Assoc. +7.3% $61.63 IBM +9.5 96.25 Microsoft +7.4 87.63 Parametric Tech. +5.5 60.00 Seagate Tech. +3.3 50.13 Sun Microsystems +7.3 44.63
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