IT hardware and services company IBM Corp beat quarterly revenue expectations on Monday but warned the hit from forex for the year could be about $3.5 billion due to a strong dollar.
A hawkish Federal Reserve and heightened geopolitical tensions have driven gains in the dollar against a basket of currencies over the last year, prompting companies with sizeable international operations, including Microsoft (MSFT.O) and Salesforce, to temper expectations.
Shares of IBM pared losses and were down 1.3% in extended trading.
On the earnings call, Chief Financial Officer James Kavanaugh told analysts both currency headwinds and impact from exiting Russia operations has put pressure on IBM’s near-term results but reiterated the company’s full-year forecast of hitting the upper end of mid-single-digit revenue growth at constant currency.
IBM expects a foreign exchange hit to revenue of about 6% this year, Kavanaugh said. It had previously forecast a 3%-4% hit.
Second-quarter revenue was hurt by $900 million due to a stronger U.S. dollar, Kavanaugh said, adding the pace and magnitude at which the currency has strengthened was “unprecedented”.
IBM posted adjusted gross profit margin of 54.5% for the quarter ended June 30, while analysts on average expected 56.6%, according to Refinitiv data.
However, strong demand at its consulting and infrastructure businesses helped IBM post second-quarter revenue of $15.54 billion, beating analysts’ average estimate of $15.18 billion.
IBM sees revenue growth continuing, including in regions like Europe and Asia Pacific, despite geopolitical turmoil and inflationary pressures, Kavanaugh said, echoing words of peer Accenture , which had last month said it does not foresee a pull back in client spending.
The 110-years-old company has placed its hopes on high-growth software and consulting businesses with a focus on the so-called “hybrid cloud”. Cloud revenue rose 18% to $5.9 billion.
Excluding items, the company earned $2.31 per share, beating estimates of $2.27. Reuters