IBM share prices surged by around 3% on Tuesday following the release of the company's better-than-expected first-quarter earnings report. The company's earnings and revenue both topped average analysts' expectations for the three-month period.
For its first quarter, the company reported earnings of $1.40 per share, higher than the $1.38 per share expected by Wall Street. Revenue for the period stood at $14.2 billion, also higher than the $13.85 billion analysts had forecasted for the quarter.
Despite already spinning off its managed infrastructure services business into a separate company called Kyndryl Sales, IBM still managed to report strong revenue growth for the quarter of around 7.7%. Net income from its continuing operations for the quarter jumped by more than 64% compared to the same period last year.
IBM's software sector produced $5.77 billion in sales in the first quarter, up 12% and above the $5.63 billion estimated by analysts for the period. Revenue from consulting increased 13% to $4.83 billion, above the average expectation of $4.6 billion. As clients prepare for IBM's next-generation mainframe computer later this year, the company reported an expected infrastructure revenue decline of 2% to $3.22 billion.
The consultancy business's gross margin fell to 24.3% from 27.8% in the previous quarter, while the company's overall gross margin increased to 51.7% from 53.3% a year before. IBM said its recent acquisitions reduce profits while also increasing the cost of hiring new personnel. In the first quarter, IBM announced the purchases of Envizi, a producer of environmental data analytics software, and Sentaca, a telecommunications consultancy business.
IBM increased its full-year sales guidance to the high end of its mid-single-digit range in constant currency, with an extra 3.5 percentage points from Kyndryl. Analysts were advised in January to expect mid-single-digit growth, excluding the effect of the Kyndryl spinoff. IBM said higher contract prices should improve the growth of its consulting business this year.
Like other major western companies, IBM announced in March that it was pulling out of Russia due to the war in Ukraine. The company's chief financial officer, Jim Kavanaugh, said Tuesday that its exit from Russia should have a very minimal impact on its business as it only accounts for about 0.5% of its total revenue and 2% of its total earnings.
This year, IBM's stock has outperformed the S&P 500, losing just 3% as of Monday's close, while the broader index has fallen 6%. Given rising interest rates and the European conflict, investors have shifted to value stocks in 2022.