IBM Beat Expectations, So Why Did Its Stock Fall?
IBM said it earned $2.95 per share in the quarter that ended in September. That was 11% more than a year earlier, and above the $2.85 that analysts had expected. Investors.com reported that sales also beat estimates. On a second measure, earnings were $2.31 per share, according to the company's release. Even so, shares fell 6% in early trading on Thursday, per Seeking Alpha.
Adjusted earnings leave out certain costs that a company says it wants to set aside. Think of it like a school grade that drops one hard test. To see the full picture, you need the table in the company's release that explains the difference.
The quarter followed a surprise in July. On July 14, IBM released early numbers for the second quarter. Revenue was $17.2 billion, up 1%, and adjusted earnings were $2.93 per share, up 5%. MarketWatch described the stock as heading toward its worst day in nearly 40 years. Yahoo Finance put the decline at 25.2%. MarketWatch also noted that the earnings figure fell short of expectations. IBM published its final second-quarter results on July 22.
Reporting earnings early is unusual for a company of IBM's size. MarketWatch called the July move a rare step.
The damage did not stop at big investment funds. MarketWatch reported that IBM employees lost more than $400 million in their 401(k) accounts, the US workplace retirement plans, as the share price collapsed.
That matters most for workers whose retirement savings are heavily tied to their own employer's stock. A drop that size can wipe out savings and undo the protection that spreading money across many investments is meant to provide.
The stock kept sliding for the rest of the quarter. The Motley Fool reported that IBM shares finished the quarter near $220, down about 22% from where the quarter began.
So the shares were still absorbing the July news when the October report came out.
The third-quarter beat looks good, but it was measured against a bar that July had already lowered. That is not the same as a return to the old path. A ten-cent beat, about 3.5% above expectations, is a small margin.
The early drop suggests investors were looking at something besides the headline. Seeking Alpha pointed to things like the quality of sales, the company's outlook, and whether growth in software and cloud infrastructure will last. A few hours of early trading is a weak basis for judging where the stock goes next.
The order of events matters more than any single number. IBM shared its earnings early, watched its stock fall about a quarter in one day, and then beat a lowered bar within three months. That gives investors a real test of whether the July reset was believable. The October numbers are the first real evidence, and several more quarters will be needed before they count for much.
