Risk Management

Big Blue Moves Away from ‘Absolute’ Earnings Forecasts

In addition, IBM expects 2014 operating earnings per share to decline as much as 4% from 2013.
Matthew HellerNovember 12, 2014
Big Blue Moves Away from ‘Absolute’ Earnings Forecasts

Hoping to avoid a repetition of last month’s stock plunge, IBM is backing away from making precise earnings forecasts in the future.

Martin Schroeter, CFO of IBM.

Martin Schroeter, CFO of IBM.

The computer giant’s shares fell 7.1% to a three-year low on Oct. 20 after CEO Ginni Rometty abandoned the pledge she inherited from her predecessor, Sam Palmisano, to reach adjusted profit of $20 a share by 2015. IBM sales have dropped for 10 straight quarters amid dwindling demand for servers and other hardware.

Big Blue may have learned a big lesson. At an investor conference Tuesday, Bloomberg reports, CFO Martin Schroeter said IBM is unlikely to make another “absolute” earnings-per-share forecast, but would still strive for transparency.

Drive Business Strategy and Growth

Drive Business Strategy and Growth

Learn how NetSuite Financial Management allows you to quickly and easily model what-if scenarios and generate reports.

“We are going to have to be as transparent as we have been about the business and what it can earn over time,” he said.

Last month’s stock tumble dragged down the Dow Jones Industrial Average and was a blow to Warren Buffett, IBM’s largest stockholder, wiping out $900 million in the paper value of his investment. IBM is one of Buffett’s “big four” investments, along with Coke, American Express and Wells Fargo.

The company now expects 2014 operating earnings per share to decline 2% to 4% from $16.64 in 2013, reflecting a third-quarter pretax charge of $4.7 billion for its chipmaking unit, which it is paying Globalfoundries $1.5 billion to take over. IBM had been projecting 2014 adjusted earnings of at least $18 a share.

According to Bloomberg, IBM’s technology customers are increasingly moving data and software to the cloud, instead of on-site servers, lessening the demand for IBM hardware and the sales and maintenance staff who support it.

Schroeter said Tuesday that the company expects about $7 billion in cloud-related sales next year, with $3 billion of that coming from new offerings and the rest from old products shifted to be delivered via the cloud.

IBM shares were down about about 0.9% at $161.85 in trading Wednesday. The stock is down 13% this year.

Source: Bloomberg