It just wasn't good enough.
International Business Machines Corp. (IBM - Get Report) 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 - Get Report) unload nearly all of its IBM shares, it looks like markets are now even less forgiving of bad news than before."