Concerning Results

Following the release of the company’s financial results for the second quarter, IBM’s shares fell today as a result.

Even though the company’s sales and earnings beat Wall Street’s expectations, investors fled the stock after the management reduced its free-cash-flow (FCF) guidance for the year. The fact that IBM has lowered its estimate of free cash flow for the year has caused investors to be concerned.

According to the stock price at 11:16 a.m. Eastern Time, the tech company had fallen by 6.1%.

What’s happening over there?

In the quarter, IBM reported adjusted earnings of $2.31 per share, up 43% from a year ago and ahead of analysts’ average estimate of $2.28. Revenue increased 9% from a year ago to $15.5 billion, above analysts’ consensus estimate of $15.1 billion. 

Instead of paying attention to the company’s strong performance in the second quarter, investors focused on the fact that management lowered its full-year outlook for FCF. 

For 2022, the company now expects the consolidated free cash flow to be $10 billion, up from the $10.5 billion estimate it made earlier this year.

The company’s chief financial officer stated on its earnings call that currency pressure is one reason for the downward free cash flow revision and exiting its Russia operation. 

Should I do something? 

Even though IBM beat expectations in the quarter, investors are very sensitive to any signs that a company’s profits or free cash flow growth are slowing down, as they are concerned about rising inflation and the possibility that the United States might enter a recession.

As investors gauge how the market will react to upcoming interest rate increases from the Federal Reserve, IBM’s stock, like other tech stocks, could experience significant price swings in the future.