The company said on Oct. 16 it is confident of delivering full-year EPS of at least $8.75 a share, implying fourth-quarter earnings of $3.07, or 9.6% growth year over year, in line with analysts' estimates, according to Thomson Reuters.
IBM also held fast to its long-term earnings roadmap, which sets an end-point EPS goal of $10 to $11 in 2010. The company has not yet projected 2009 earnings. Yet Gartner has cut its 2009 worldwide IT spending growth projection by more than half, to 2.3%, with the U.S. market most affected by frozen budgets.
Analysts now expect 2009 earnings of $9.24 a share, down from $9.34 in early October and $9.59 in July. The consensus estimate predicts earnings growth of 5.6%, or 49 cents, above IBM's projection for 2008 earnings of $8.75.IBM's 2009 sales determine the company's longer-term earnings performance, as revenue is recognized over time. CFO Mark Loughridge said on the conference call that he is confident IBM can stick to its 2010 EPS target of $10 "on operational performance and maybe even exceed that." By cutting expenses over the past two years, particularly in developed markets, IBM has delivered margin improvements that will see it through a tough economy. Another driver is annuity-based revenue. As IBM signs multi-year contracts that create a regular revenue stream, it is upholding pricing levels that grow margins, Loughridge said. Discounting would undercut margins.