(Reuters) – International Business Machines Corporation ( IBM.N ) posted profit margins on Tuesday that fell short of Wall Street expectations, a sign that their reinvention needs time.
The technology company's shares fell afterwards 6 percent higher trading, even though it reported second quarter revenue growth after a nearly six-year series of declines.
IBM has shifted its focus to higher-margin businesses such as cloud computing, cybersecurity, and data analytics in recent years to counteract a slowdown in existing hardware and software businesses, but the move is not as fast as some shareholders would hope.
While IBM's revenue and profit exceeded expectations, the company's adjusted gross profit margin fell from 44.5 percent in the previous year to 43.7 percent.
The company said the decline in gross margin was mainly due to "significant" one-off costs.
Following a profit call with analysts, IBM CFO James Kavanaugh said the company cost $ 610 million in the first quarter, but did not provide details.
This announcement follows expectations of layoffs as IBM, led by Ginni Rometty, seeks to offset declines in its old businesses.
"Margins were well below expectations," said Pivotal Research analyst Lou Miscioscia.
The company said it had a tax benefit of $ 810 million due to changes in US tax law.
Wedbush Securities analyst Moshe Katri said IBM's legacy hardware business continues to weigh on margins. "It's not necessarily about topline growth, it's about profitable growth," Katri said.
In addition, IBM continues to expect diluted earnings per share of at least $ 13.80 for the full year, while analysts expect a 13.83 USD consensus, according to Thomson Reuters I / B / E / S.
"We delivered exactly what we said 90 days ago, the $ 13.80 is a" minimum "and it's 1 to 2 percent more than the year," said Kavanaugh Reuters in an interview.
IBM sales increased 5 percent to $ 19.07 billion in the quarter. Security Services revenue grew 65 percent. Cloud revenue grew 25 percent.
Net income declined to $ 1.68 billion, or $ 1.81 per share, in the first quarter ended March 31 from $ 1.75 billion or $ 1.85 per share a year earlier ,
Excluding items, the company earned $ 2.45 per share, exceeding the average analyst estimate of $ 2.42.
"We are very pleased to be entering the second quarter and the rest of the year when we can actually make progress," said Kavanaugh.
Reporting by Pushkala Aripaka and Munsif Vengattil in Bengaluru; Arrangement by Arun Koyyur and Cynthia Osterman