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IBM net income exceeds estimates

January 19, 2007|From the Associated Press

IBM Corp.'s fourth-quarter profit rose 11% and beat Wall Street expectations Thursday, and IBM also delivered a blockbuster figure in services contract signings, an important measure of future revenue.

In the last three months of 2006, IBM earned $3.54 billion, $2.31 a share, on revenue of $26.3 billion. The numbers were boosted 6 cents a share by a lower tax rate and 5 cents a share from gains related to discontinued operations.

Even without those bumps, IBM exceeded the consensus of analysts surveyed by Thomson Financial. Wall Street was expecting profit of $2.19 a share and revenue of $25.7 billion.

"We had a very strong finish to the year," Chief Financial Officer Mark Loughridge said.

Loughridge did not release specific guidance for future periods, but he did say he was comfortable with current earnings forecasts: "We feel good about the momentum of our business as we enter 2007."

The results were released after the market closed and investors seemed unimpressed. IBM shares dropped more than 5% in after-hours trading. Its stock fell 57 cents to $99.45 in the regular session.

The quarterly figures all surpassed last year's results, when profit was $3.19 billion, or $1.99 a share, and revenue was $24.4 billion.

However, profit in that comparison quarter was dragged down about $200 million after taxes, or 12 cents a share, by a one-time accounting charge and costs IBM incurred in freezing its pension plan.

In one sense, this quarter's performance echoed much of the way 2006 played out at IBM. The Armonk, N.Y.-based company struggled to find sales growth but rode cost cuts and software acquisitions to higher profit.

However, by another closely followed measure, services signings, IBM's fourth quarter might have marked a turning point as it signed $17.8 billion in services contracts, a hefty leap from $10.5 billion in the prior quarter and $11.5 billion a year ago.

That could further galvanize investors who have already sent IBM's stock on a tear the last six months. Despite Thursday's decline, shares are still near their 52-week high.

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