It just wasn't good enough.
International Business Machines Corp. (IBM) shares are on pace for their biggest single-day decline in a year Wednesday after the former tech sector icon reported a weaker-than-expected profit margin in an otherwise solid set of first quarter earnings.
IBM said revenues for the three months ending in March rose 5% to just over $19 billion, its second consecutive quarter of sales growth after two years of declines, but noted that its gross margin, a key measure of profitability, slid 0.8% from the same period last year to 43.7%, a figure that fell far short of analysts' forecasts.
"In the quarter, we took actions to continue the transformation of our business," IBM CFO Jim Kavanaugh told investors on a conference call. "These actions drove pre-tax charges of about $610 million, with the majority of this in SG&A, and some in cost."
"And then second, we took actions that will better position our systems cost structure over the long term," he added. "In addition, we settled a number of US and foreign tax audits, which drove discrete non-cash, tax benefits of $810 million in the quarter."
IBM shares were marked 4.79% lower in pre-market trading in New York, indicating an opening bell price of $153.20, a move that would be the stock's biggest one-day slide since last April and take the stock into negative territory for the year.
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"Though not spectacular,", JJhonsa said of the release, the figures "aren't on the surface enough to warrant selling off a stock that has largely tread water since the spring of 2016. But they look softer after one remembers IBM's revenue growth got a 5-percentage-point boost from a weak dollar, larger than Q4's 3-percentage-point boost."
"Investors certainly haven't been ignoring such challenges in recent years, as IBM's 5-year chart makes clear," he noted. "But after seeing Big Blue mostly sit out a massive 2-year tech rally, and after seeing Warren Buffett's Berkshire Hathaway (BRK.A) unload nearly all of its IBM shares, it looks like markets are now even less forgiving of bad news than before."