IBM’s stock had its biggest gain in six months Thursday after saying its stream of rising profits will go on, even in the shaky economy. IBM was the top performer among the 30 companies that make up the Dow Jones Industrial average.
THE SPARK: After the stock market closed Wednesday, IBM announced its second-quarter earnings climbed by 6 percent despite a drop in revenue that was deeper than analysts anticipated. The shortfall was tied to the economic turmoil in Europe that has weakened currencies abroad, translating into less revenue when IBM’s overseas sales are converted into U.S. dollars
Similar revenue trends are expected during the final half of the year, but IBM believes it will be still be able to increase its earnings by managing its expenses and selling more software products, which have better profit margins than the mainframe computers that were once the foundation of the 101-year-old company. Management signaled its confidence by raising its full-year guidance Wednesday. The full-year forecast implies IBM’s earnings will rise by about 10 percent during third and fourth quarters. If that happens, IBM will have posted higher year-over-year earnings for 40 consecutive quarters.
THE BIG PICTURE: IBM typically signs long-term contracts to provide a mix of software, consulting services and computers to corporate and government customers. The guarantees in those deals provide IBM with revenue that is staggered over many quarters, providing the company with a bit of a cushion if the companies and government agencies become more reluctant to invest in technology should the tottering economy topple into another recession.
SHARE ACTION: Shares of Corp. rose $7.24, or 3.8 percent, to $195.49 in Thursday’s early afternoon trading. That marked the stock’s biggest gain since January following the release of the company’s fourth-quarter earnings and financial projections for this year. The shares have ranged from $157.13 to $210.69 in the past year.
