October 8, 2024

I.B.M.’s Profit Beats Forecast

The I.B.M. formula continues to pay off.

Profits, more than sales growth, have been the big technology company’s focus in recent years. And predictably, I.B.M. delivered a steady performance in the fourth quarter of 2011, reporting profits that easily surpassed Wall Street forecasts. Sales were just below analysts’ estimates, weighed down by a slowdown in mainframe sales, compared with the previous year when new models were introduced.

The company reported that its net income rose 4 percent, to $5.5 billion. But its operating earnings per share rose 11 percent to $4.71 a share. There were far fewer outstanding shares than a year earlier after I.B.M. spent billions to buy back shares in 2011.

The quarterly result was well above the $4.62-a-share average estimate of Wall Street analysts, as compiled by Thomson Reuters.

“The quarter was typical I.B.M.,” said A. M. Sacconaghi, an analyst at Sanford C. Bernstein Company.

I.B.M.’s revenue rose 2 percent to $29.5 billion, but it fell short of analysts’ forecast of $29.7 billion. Analysts expect that the faltering economy in Europe and the stronger dollar will curb reported sales for major technology companies like I.B.M., who derive the majority of their revenue from abroad.

Virginia M. Rometty, I.B.M.’s chief executive, called the quarterly performance a “strong” finish to a year of record earnings per share, revenue and profit.

I.B.M. also expressed its confidence in the current year, saying it anticipated earnings for 2012 of “at least $14.85 a share.” That is above the Wall Street consensus of $14.76 a share, according to FactSet Research.

In after-hours trading, I.B.M. shares rose $4.50 a share, or 2.5 percent, to reach $185.05.

I.B.M. is the largest single supplier of information technology to corporations worldwide, selling more than $100 billion a year in services, software and hardware to businesses and governments. As a result, the company’s results are closely watched as a barometer of corporate spending and confidence. In that respect, analysts say, the company’s performance is reassuring.

Recent reports suggest that corporate technology buyers will restrain spending this year, given the uncertain global economy. A survey of more than 2,300 chief information officers in 45 countries, conducted by the research firm Gartner and released on Wednesday, found that technology budgets would be flat this year and would decline in North America and Europe. But I.B.M., analysts note, has become more resilient to swings in economic cycles than most corporate technology suppliers.

In recent years, I.B.M. has shed more cyclical hardware businesses like personal computer and disk drives, while stepping up its investment in more stable services and software businesses. It has been aggressive in tapping fast-growing markets abroad, while developing new businesses, like analytics software that helps companies sift through data for insights about how to cut costs and help sales.

“I.B.M is uniquely positioned to sell higher-value software and services,” said Ben Reitzes, an analyst at Barclays Capital.

The company got strong performances from businesses its top management had singled out as particularly important to its future. Revenue from fast-growing markets abroad including China, India and Brazil, and dozens of smaller ones, increased 16 percent. These designated growth markets now account for 22 percent of I.B.M. business, Mark Loughridge, the chief financial officer, said in conference call. Its “smarter planet” business — which combines research, specialized skills and sophisticated technology — grew by 47 percent. The initiative, which was started in 2008, has more than 2,000 projects, like creating more efficient systems for utility grids, food distribution, water conservation and health care.

But the hardware business held back growth. In the year-earlier quarter, hardware sales surged because new models of I.B.M. mainframes had recently been introduced. In the fourth quarter of 2011, without a new model, mainframe revenue dropped 31 percent from the previous year.

Software revenue grew 9 percent to $7.6 billion in the quarter, and the big services business added 3 percent to $10.5 billion. The growth in services revenue was restrained by Japan, where I.B.M. has a large services business and the economy is weak.

Still, profit margins in the services business are rising, and new contracts signed — a signal of future revenue — were $20.4 billion, above analysts’ estimates.

“We have a good hand as we enter 2012,” Mr. Loughridge said.

This article has been revised to reflect the following correction:

Correction: January 19, 2012

An earlier headline and summary on this article misstated I.B.M.’s sales trend for the quarter. Revenue was up, not down, by 2 percent.

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DealBook: Wells Fargo Profit Rose 20% in Fourth Quarter

Wells Fargo, the nation’s largest consumer lender, said on Tuesday that its fourth-quarter earnings rose 20 percent, an indication the bank was coping with a lackluster economy and an anemic banking industry.

The bank, based in San Francisco, turned a $4.1 billion profit in the fourth quarter, or 73 cents a share, as its loan portfolio showed signs of improving and it avoided exposure to the volatile investment banking business. That compared with a profit of $3.4 billion, or 61 cents a share, in the period a year earlier. The figures — padded somewhat by the bank’s decision to set aside $600 million less in reserves to cover soured loans — narrowly beat analysts’ consensus estimate of 72 cents a share.

The strong fourth-quarter results helped the bank to a $15.9 billion profit in 2011, up 28 percent from 2010, when the bank earned $12.36 billion.

“I’m extremely pleased with Wells Fargo’s performance in 2011 — including strong deposit and loan growth, record cross-sell and record earnings,” John G. Stumpf, the bank’s chairman and chief executive, said in a statement.

Investors responded well to the report, sending the bank’s shares up more than 2 percent, to about $30.35, in morning trading on Tuesday.

But the profit gains at Wells Fargo were limited by declining revenue, reflecting a setback felt across the banking industry as a result of the sluggish economic recovery. A new round of federal regulations also continued to weigh on revenue at banks.

Wells Fargo’s fourth-quarter revenue fell to $20.6 billion from $21.5 billion in the period a year earlier. For the year, the bank posted $80.9 billion in revenue, down from $85.2 billion in 2010.

Wells Fargo and its fellow big banks are struggling to recoup precious revenue lost to a new rule that limits fees charged to merchants when a consumer uses a debit card. The rule, known as the Durbin amendment, after its sponsor Senator Richard J. Durbin, Democrat of Illinois, is expected to cost banks hundreds of millions of dollars every quarter.

“The Durbin hit is real money,” said Brian Foran, a senior analyst with Nomura, who cautioned that banks were unlikely to reverse their revenue woes anytime soon. “We’re not going to get that inflection point in 2012.”

But Wells Fargo is faring better than its competitors. The bank has an edge over Wall Street titans that have large investment banking operations, a business that has suffered from rampant volatility in the markets.

JPMorgan Chase said on Friday that its fourth-quarter profit dropped 23 percent, largely as a result of a slowdown at its investment bank, where profit plunged 52 percent.

But Wells Fargo has a smaller sales and trading operation than, say, JPMorgan or Goldman Sachs, which is to report earnings on Wednesday.

Wells Fargo does not break out its investment banking results, but the wholesale banking unit, which includes the sales and trading business and the corporate lending unit, earned $1.6 billion in the fourth quarter. The results were down 3 percent from the period a year earlier.

And while other big banks struggle to shed the legacy of the mortgage boom and bust, Wells Fargo has patched up its giant lending operation and produced greater profits, quarter after quarter. In addition to reducing the expense for its bad-loan reserve by $600 million, Wells Fargo said its bucket of nonperforming loans in the fourth quarter declined roughly 20 percent from the period a year earlier.

There is growing demand for credit from Wells Fargo, too. The bank continues to dominate the mortgage business, with a nearly 30 percent share of the market. Its loan total grew to $769.6 billion in 2011 from $757.3 billion at the end of 2010.

The uptick in lending has bolstered profits.

Profit in the community banking division, which includes Wells Fargo’s retail branches and mortgage business, soared 30 percent, to $2.5 billion, in the fourth quarter from the period a year earlier.

Wells Fargo has also grown since it seized control of the Wachovia Corporation at the peak of the financial crisis, which allowed the bank to build a network of retail branches along both coasts.

“The deposit side of the business is one place where Wells is very well positioned,” Mr. Foran, the Nomura analyst, said. “They don’t know what to do with all these deposits.”

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