IBM Profit Up Just 3.5% in 4th Quarter
International Business Machines Corp. said Tuesday that its fourth-quarter profit rose just 3.5% and warned that the stronger dollar and higher advertising costs will hurt earnings in the current quarter.
The world’s largest computer maker earned $2.1 billion, or $2.11 a diluted share, up from $2.02 billion, or $1.93 a share, in the year-earlier period. IBM was expected to earn $2.15 a diluted share, according to IBES International Inc. The results were announced after the market closed. IBM shares rose $3.38 to close at $108.38 in regular trading.
IBM’s results highlighted its problems in boosting lagging sales of its mainframe and personal computers. Hardware sales, once IBM’s mainstay, fell 1.3% during the quarter, while rivals such as Compaq Computer Corp. and Dell Computer Corp. have posted sales gains of 30% or more.
Analysts said they were concerned by IBM’s downbeat tone during a conference call held after the earnings report, where the company issued its warning about first-quarter earnings.
“This was decidedly negative,” said analyst William Milton at Brown Bros. Harriman & Co., who rates IBM a “buy.” “The bottom line is that [analysts’ estimates] should [be] coming down substantially for the first quarter, and also for the year.”
IBM said sales rose 2.5% to $23.7 billion in the fourth quarter from $23.1 billion a year ago. Sales of IBM’s mainframes, computers and other hardware fell 1.3%, to $11.5 billion from $11.6 billion.
U.S. companies now report earnings per share two ways: diluted, which reflects options, warrants and other securities convertible into common stock, and basic, which does not reflect them. In basic terms, IBM earned $2.16 a share, compared with $1.97 a share in the year-ago period.
Among other tech earnings:
* Rockwell International Corp. said fiscal first-quarter profit fell 50%, largely due to acquisition costs and weakness in its chip business. The lower results from semiconductors were partly offset by strong sales of automation and avionics equipment. Rockwell said it earned $89 million, or 43 cents per share, in its latest quarter. That was down from $179 million, or 81 cents, in the year-ago period.
* Lucent Technologies Inc.’s fiscal first-quarter profit climbed 31% as the phone equipment maker sold more software and wireless products, kept costs down and benefited from a lower tax rate. Lucent’s profit rose to a record $1.12 billion, or $1.72 a diluted share, before a charge and a gain. That’s up from $859 million, or $1.35, in the year-earlier period and well above the average estimate of $1.52 by analysts polled by IBES International Inc.
* Qualcomm Inc.’s fiscal first-quarter profit more than quadrupled as the maker of wireless phone equipment shipped a record number of digital phones and the computer chips used in them. The San Diego-based company said profit before charges for the quarter ended Dec. 28 rose to $42.9 million, or 58 cents a diluted share, from $9 million, or 13 cents, in the year-earlier period. Results beat the average estimate of 49 cents by analysts surveyed by IBES.
* Santa Barbara-based Mentor Corp. said its fiscal third-quarter earnings fell to $5.84 million, or 22 cents a diluted share, from $7.10 million, or 27 cents, a year earlier.
* Seagate Technology Inc. reported a fiscal second-quarter loss that was less than analysts expected. The loss was $183 million, or 75 cents a diluted share, including restructuring charges. Excluding the charges, Seagate had a loss from operations of 8 cents a diluted share.
* Computer Sciences Corp. said fiscal third-quarter earnings totaled $69.1 million, or 87 cents per diluted share, from $57.4 million, or 73 cents, a year ago.
Brokerages: Merrill Lynch & Co. said fourth-quarter earnings rose at the slowest pace in almost three years as plunging Asian markets hurt trading revenue and signaled that Wall Street’s 1998 profits may fall short of last year’s record.
Merrill, the biggest U.S. securities underwriter and broker, said net income for the quarter increased to $466 million, or $1.17 a diluted share, from $445 million, or $1.14, in the year-earlier period. Earnings for the latest quarter fell short of the $1.22-a-share average estimate of analysts surveyed by IBES, and declined 5.5% from the third quarter.
Donaldson, Lufkin & Jenrette Inc. said net income rose to $101.4 million, or $1.53 a diluted share, from $73.1 million, or $1.16, in the same period a year earlier, as gains in investment banking and commissions offset declines in trading. PaineWebber Group Inc.’s fourth-quarter net advanced to $108.7 million, or 68 cents a diluted share, from $91.5 million, or 57 cents, led by gains in commissions and fees from asset management.
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Drugs: Johnson & Johnson and Pfizer Inc. said fourth-quarter profits rose as increased sales of some drugs compensated for Pfizer’s investment in new products and a decline in Johnson & Johnson’s sales of a surgical device.
Pfizer’s fourth-quarter net income was $558 million, or 43 cents a diluted share, up from $504 million, or 39 cents, a year earlier.
Johnson & Johnson saw fourth-quarter earnings rise to $630 million, or 45 cents a diluted share, from $556 million, or 41 cents, a year earlier.
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Airlines: U.S. airlines’ profits continued to climb in the fourth quarter and for the third straight year as carriers prospered from heavy passenger demand.
Northwest Airlines’ fourth-quarter profit more than tripled to $114.7 million, or $1.06 a diluted share, and Continental Airlines’ earnings jumped 55% to $73 million, or 97 cents a diluted share. America West said its net income jumped 66% to $20.1 million, or 43 cents a diluted share.
Also: Lockheed Martin Corp. said fourth-quarter earnings rose 12% as the company received about $850 million in payments from key military contracts. The company said profit after gains and charges rose to $363 million, or $1.79 per diluted share, from $323 million, or $1.49, in the year-ago quarter.
* BANK EARNINGS: D2
