By Dhirendra Tripathi
Investing.com – IBM (NYSE:IBM) stock was up 4% in Tuesday’s premarket trading after the tech giant’s second-quarter earnings and top line both beat estimates and forecast a strong year overall.
The former market bellwether said it is on track to achieve $11 billion to $12 billion in adjusted free cash flow for the year.
Total revenue rose 3.4% to $18.74 billion, the biggest gain in three years for a company that has struggled to reinvent itself as a Cloud-based service provider and return to sustainable revenue growth. Diluted adjusted earnings per share rose 7% to $2.33.
Analysts had expected the company to report EPS of $2.32 on revenue of $18.29 billion.
IBM Chairman and Chief Executive Officer Arvind Krishna attributed the topline growth to more clients being willing to adopt the company’s hybrid Cloud model and AI services. A hybrid model allows corporates to use outsourced Cloud-based servers as well as its own. This blended model allows clients to derive two-and-a-half-times more value, according to Krishna.
Revenue in both the segments grew by more than 10%. Gross profit margin expanded 30 basis points to 49.3%. One basis point is one-hundredth of a percent.
The company said it now has 3,200 clients using its hybrid Cloud, almost four times what it had before buying Red Hat in 2019. Red Hat revenue rose 20%.
The company used the higher cash flows to pay off $6.4 billion in debt in the first six months of 2021, ending with $55.2 billion debt as of June 30.