3 ETFs In Focus As IBM Posts Better-Than-Expected Q2 Results

Shares of IBM Corporation (NYSE:IBM) got a boost in after-hour trading on Monday, after delivering encouraging second-quarter results. Though company’s revenues declined for 17 consecutive quarters, it managed to beat our estimates on both the top and the bottom lines. Better-than-expected results led shares of IBM to gain nearly 3% after hours.

The tech giant’s operating non-GAAP earnings per share (EPS) for the second quarter came in at $2.95, beating the Zacks Consensus Estimate of $2.89. Operating revenues of $20.2 billion came in above the Zacks Consensus Estimate of $20.08 billion. This marks IBM's 4th straight positive earnings surprise.

However, EPS and revenues in the quarter declined 23% and 3% from the year-ago quarter, respectively. Meanwhile, the company maintained its non-GAAP EPS guidance for the current year at $13.50, which is also in line with the current Zacks Consensus Estimate.

Strategic Imperatives Boost IBM’s Q2 Results

Encouraging growth in IBM’s strategic imperatives, which include cloud, analytics and engagement, led to a year-over-year jump of 12% in revenues. Revenues from cloud, analytics, mobile and security rose 30%, 5%, 43% and 18% respectively from the year-ago quarter.

Also, the annual run rate for IBM's cloud-based solutions increased $2.2 billion year over year, to $6.7 billion. Moreover, revenues from Cognitive Solutions grew 3.5% year over year to $4.7 billion, higher than analysts’ expectation of $4.5 billion.

The segment’s cloud revenues saw a surge of 54% from the year-ago quarter. The contribution of its strategic imperatives to the company’s revenues rose to 38% from 37% recorded in the previous quarter (read: IBM Beats, Posts Worst Revenue in 14 Years: ETFs in Focus).

Concerns Remain

Despite the positive contribution from strategic imperatives, revenues of the company declined for the seventeenth quarter due to dismal performance by its other key segments including systems and global financing. Revenues from systems, which include systems hardware and operating systems software, slumped 23.2% from the year-ago quarter to $2 billion (see: all the Technology ETFs here).

Moreover, global financing – financing and used equipment sales – saw a year-over-year plunge of 11.3% in revenues to $424 million during the quarter. Also, revenues from the global business services segment declined 2% year over year to $4.3 billion. Separately, non-GAAP net income slumped 25% from the year-ago quarter to $2.8 billion. Non-GAAP gross profit margin also declined 1.9 points to 49% in the second quarter.

3 ETFs in Focus

Investors will closely watch whether IBM’s better-than-expected results manage to overshadow its year-over-year decline. We have highlighted three ETFs that have significant exposure to IBM and are likely to be in focus in upcoming days.

First Trust NASDAQ Technology Dividend ETF TDIV

This fund provides exposure to dividend payers within the technology sector by tracking the Nasdaq Technology Dividend Index. The product has amassed about $482.9 million in its asset base while trades in volume of around 72,000 shares per day. It charges 50 bps in annual fees and holds about 93 securities in its basket.

Of these firms, IBM takes the second spot, making up roughly 7.9% of the assets. In terms of industrial exposure, the fund allocates more than one-fourth portion in semiconductor and semiconductor equipment, followed by diversified telecom services (15.2%), software (15.2%) and technology hardware, storage & peripherals (14.1%) (read: Tech ETFs that Braved the Storm in February).

SPDR Dow Jones Industrial Average ETF (V:DIA)

This fund follows the Dow Jones Industrial Average, providing exposure to 31 blue-chip U.S. stocks. IBM occupies the third position in the basket with 5.9% share. The ETF is well spread out across a number of sectors with industrials, information technology, consumer discretionary, financials and health care taking the top five spots with double-digit exposure each.

DIA is one of the largest and most popular ETFs in the space, with AUM of $12.2 billion and average daily volume of more than 4 million shares. It charges 17 bps in annual fees from investors and has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook.

Guggenheim Dow Jones Industrial Average Dividend ETF DJD

This ETF has amassed about $2.8 million in its asset base. The fund offers an alternative, strategic beta approach to the Dow Jones Industrial Average by weighting each security by dividend yield, rather than price. It follows the Dow Jones Industrial Average Yield Weighted index, holding 31 securities in its basket. Of these, IBM occupies the fifth position with 4.6% allocation.

In terms of exposure, industrials takes the top spot with 19.3%, followed by information technology (18.9%), health care (13.4%), financials (11.2%) and consumer staples (10.7%). The product charges 30 bps in annual fees from investors and trades in a paltry volume of around 2,000 shares a day on average (read: Dow to Hit 20,000? ETFs to Play).