This Is Why IBM Shares Tanked

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IBM released disappointing first quarter results on Tuesday that left investors pretty disappointed. Shares closed down nearly 5% on Wednesday and dragged the Dow Jones Industrial average down with it as the company is the fourth highest priced stock in the index.

The latest decline marks the twentieth consecutive quarter of year-over-year revenue declines for the computer company.

Jefferies analyst James Kisner said in a note, “The results reinforce our view that IBM’s recently poor earning quality masks ongoing secular headwinds that will likely result in disappointment for investors.” The firm has an underperform rating on IBM.

IBM report EPS: $2.38 a share versus the $2.35 a share expected by Thomson Reuters. Revenue came in at $18.16 billion versus the $18.39 billion expected by Thomson Reuters. That’s a 1 percent gain in earnings per share, and a 3 percent decline in revenue from a year ago, according to the company.

“The portfolio will grow. I am confident that the IBM company will grow again,” chief financial officer Martin Schroeter told CNBC. “We’re taking time to make sure we invest in the right places and make sure we get the kind of margin high-value profile we’re looking for.”

In a statement, Schroeter also said that IBM has ramped up research and development spending during the quarter. Research and development expenditures soared to $1.53 billion during the quarter, up from $1.46 billion a year ago.

“For us what it’s always been about for us is a shift as much as it is adding to that pie,” Schroeter said in the company’s conference call. “So I think the adding to the pie now is behind us and the shift will continue. So we’ll continue to invest heavily in the strategic imperatives, but it won’t represent the same growth that we’ve seen in the past.”

IBM shares have lost 2 percent year-to-date as of Wednesday’s closing price.

Disclaimer: We have no position in IBM Common Stock (NYSE: IBM) and have not been compensated for this article.

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