IBM Profit Up Just 3.5% in 4th Quarter
International Business Machines Corp. said Tuesday 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.
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 notched sales gains of 30% or more.
Analysts said they were concerned by IBM’s downbeat tone on 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 Brothers 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 doesn’t 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 first-quarter profits 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 per share, in the year-ago period.
* 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. Revenue fell 30% to $1.67 billion from $2.40 billion.
* Bay Networks Inc. said profit before a charge was $59.5 million, or 27 cents a diluted share, for the quarter ended Dec. 27, compared with a loss of $172.9 million, or 90 cents, in the year-earlier period.
* 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 per share.
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 Wall Street’s 1998 profits may fall short of last year’s record.
“Companies are going to have a tougher 1998 than in 1997,” said James Wadsworth, chief equity officer at Mellon Private Asset Management in Pittsburgh, which oversees $11 billion in stocks and owns Merrill shares. “Every year has a big uncertainty. This year’s big uncertainty is Asia.”
Merrill earnings rose 5% in the final three months of 1997, the smallest increase in 11 quarters. By contrast, Donaldson, Lufkin & Jenrette Inc.’s fourth-quarter earnings rose 39%, beating analysts’ estimates, and Paine Webber Group Inc.’s increased 19%, matching estimates.
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 International Inc., and declined 5.5% from the third quarter.
DLJ 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.
Paine Webber’s fourth-quarter net income 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.
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. The New York-based company was expected to earn 43 cents a diluted share, based on the average estimate of 33 analysts surveyed by IBES International Inc.
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.
Airlines: U.S. airlines’ profits continued to climb in the fourth quarter of 1997 and for the third straight year as carriers prospered from heavy passenger demand, fueled by a strong economy, and low fuel prices.
Northwest Airlines’ fourth-quarter profit more than tripled to $114.7 million, or $1.06 a diluted share, while 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. They are the first major U.S. carriers to report earnings this year.
Also: Lockheed Martin Corp. said fourth-quarter earnings rose 12% as the company received about $850 million in payments from key military contracts. The maker of the F-16 and F-22 fighters, the Titan and Atlas rockets and the C-130J transport plane 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.
