IBM beats quarterly revenue estimates, warns of $3.5 billion forex hit

By Chavi Mehta

(Reuters) -IT hardware and services company IBM Corp beat quarterly revenue expectations on Monday but warned the hit from forex for the year could be about $3.5 billion due to a strong dollar.

A hawkish Federal Reserve and heightened geopolitical tensions have driven gains in the dollar against a basket of currencies over the last year, prompting companies with sizeable international operations, including Microsoft and Salesforce, to temper expectations.

Shares of IBM pared losses and were down 1.3% in extended trading.

On the earnings call, Chief Financial Officer James Kavanaugh told analysts both currency headwinds and impact from exiting Russia operations has put pressure on IBM’s near-term results but reiterated the company’s full-year forecast of hitting the upper end of mid-single-digit revenue growth at constant currency.

IBM expects a foreign exchange hit to revenue of about 6% this year, Kavanaugh said. It had previously forecast a 3%-4% hit.

Second-quarter revenue was hurt by $900 million due to a stronger U.S. dollar, Kavanaugh said, adding the pace and magnitude at which the currency has strengthened was “unprecedented”.

IBM posted adjusted gross profit margin of 54.5% for the quarter ended June 30, while analysts on average expected 56.6%, according to Refinitiv data.

However, strong demand at its consulting and infrastructure businesses helped IBM post second-quarter revenue of $15.54 billion, beating analysts’ average estimate of $15.18 billion.

IBM sees revenue growth continuing, including in regions like Europe and Asia Pacific, despite geopolitical turmoil and inflationary pressures, Kavanaugh said, echoing words of peer Accenture, which had last month said it does not foresee a pull back in client spending.

The 110-years-old company has placed its hopes on high-growth software and consulting businesses with a focus on the so-called “hybrid cloud”. Cloud revenue rose 18% to $5.9 billion.

Excluding items, the company earned $2.31 per share, beating estimates of $2.27.

(Reporting by Chavi Mehta in Bengaluru; Editing by Krishna Chandra Eluri)